MOVING FROM CONCERN TO CONFIDENCE
In my 15+ years as a planner, I’ve found people are typically in the dark about what Financial Planning really is. Our financial success depends on our ability to make informed integrated decisions. This cannot be done using online calculators or by listening to a financial media personality. By the time most people come to me, they have r
eceived advice from specialists such as tax preparers, attorneys, insurance agents and brokers. These specialists had not communicated with each other and recommendations ended up being counterproductive and costly.
The key to financial planning is to integrate decisions across all areas.Here are some examples of how one area can affect another.
• If Donna converts a small 401k account to a Roth IRA, she may be able to max out a lower tax bracket and grow these funds tax free, avoiding a higher tax bill down the road while accessing better investment choices.
• If Lisa purchases a vehicle using a home equity loan, instead of paying cash, she may be able to deduct the interest and obtain a higher after-tax return on the principal left in her account.
• If Sue is overpaying for life insurance, she could change the policy and use the premium savings to add an umbrella or disability policy that would cover a higher risk exposure for her family. A good fi nancial plan includes a coordinated analysis of all aspects of your life that have a dollar sign associated with them. (For a free checklist, email the address below.)
• A financial plan starts with a full financial review; your current assets, liabilities, income, expenses, details of your insurance policies, wills, taxes, etc.
• Next it identifies your future priorities, needs and wants. These could be lifestyle items, security, travel, something you want for your children/parents, charity, etc.
• The planner will then analyze risks and opportunities that could help or hinder your ability to accomplish these priorities and will integrate the pieces, checking for overlooked risks or wasted resources.
• Finally the plan will evaluate alternative scenarios to help you make life decisions such as whether to purchase a second home, move to another area, switch to a less stressful job with less pay, help an adult-child fi nancially, sell vs. become a landlord, retire or wait, etc.
Once a baseline plan has been done, it can be updated over the years for very little money.Look for a Fee-only advisor with the CFP® certifi cation. These planners are held to a fi duciary standard, and since Fee-only advisors are only paid by the client, they don’t have an incentive to make recommendations that give themselves a higher payout. Paying a fi nancial planner $3-4000 may seem like a quite a bit, but in most cases, the plan will pay for itself by helping avoid costly mistakes and uncovering useful strategies to build and preserve your wealth.
