When it comes to financial planning and preparing for the future, many people have the instinct to bury their heads in the sand to avoid the monetary realities of the future.
According to a recent retirement study published by Financial Engines Inc., just one-third of middle-income Americans have a comprehensive financial plan. But knowledge is power, and equipping yourself and loved ones with valuable information and a tangible plan will establish a clearer path to a stable future.
Whether you are financially savvy or a banking novice, creating a financial plan will allow you to implement useful actions to ensure you are adequately prepared for the future. That said, here are five steps you can take, starting today.
Start early: No matter what you’re planning for in the future, getting a jumpstart on your financial plan as soon as possible is crucial. When it comes to investments, there are two powerful sources at work: time and compounding. The earlier you implement your financial plan and begin saving, the greater the return on investment you will receive later.
By starting early, you also allow yourself more flexibility and security should something unexpected come up, such as a death, illness, or inability to work, that could affect your family’s financial situation.
Identify your goals: Once you’ve committed to outlining your financial plan, the next step is identifying goals that are important to you. Whether it’s purchasing a home in a booming real estate market in the next several years or identifying the best course of action for a lifestyle-based retirement plan, setting clear goals is imperative to a functional financial plan.
The lifestyle that you want to live will inform your financial plan needs and help shape your goals. Sharing this information in as much detail with your advisers as possible will enable them to work with you more effectively to build a strong financial strategy that best suits your needs and visions.
Collaborate with the right expert: Creating a financial plan is a personal process, so it is imperative that you select reliable and well-trusted resources for your individual situation.
For example, if you’re a small business owner, you should be considering how you want to turn your business into a retirement plan for when the time comes. This could include selling the building but not the business, or vice versa, to supplement your retirement income.
Having the right expertise means you can create an exit plan for your business. Key insights from an adviser include making sure you are working with realistic numbers for selling your business, ensuring appropriate buy-sell agreements are in place, and how you will be paid out if you sell your business—lump sum or income stream. If you’re thinking about retirement in the next several years, this is a good time to be consulting appropriate financial advisers to evaluate and counsel your exit strategy.
Create a plan: The benefit of sitting down with an adviser to create your financial plan is that you compile all of your current resources to evaluate how money flows in your life and to understand where there’s flexibility in your current lifestyle.
To accomplish your goals, a financial planner can help you create a plan that includes quantified goals and objectives, as well as the strategies that will help inform important decisions. That includes reassessing your choices and creating new strategies to help you get to where you want to go.
A financial planner can help you decide where you can trim your spending today so that you have more saved for tomorrow. The example of cutting out your daily cup of coffee is often referenced as an incremental but relatively easy place to minimize daily spending. If your daily latte is important to you, a financial adviser can help you find other places to cut back because every financial plan is custom to a set of needs and values.
Keep it up to date: A financial plan isn’t something that you create and table for later. After implementing your financial plan, you should commit to revisit it regularly. Financial advisers often see individuals who put a plan together 10 years ago and have neglected to make any adjustments since then.
However, life can change so quickly—including personal goals, tax reform, and regulatory issues—that there are many forces at work that would make you want to pivot and adjust your plan. That said, you are encouraged to review your plan at least once per year, including reviewing your investment or loan portfolio.
For example, it’s not uncommon to change your investment list based on risk tolerance. If the amount of money you would like to be tracking toward isn’t allocated within your current risk tolerance, you may need to take on more risk to increase the chances of meeting your financial goals.
Revisiting your financial plan annually is not a large task, but keeps your eye on what your goals are and ensures that you are headed toward success. Sitting down with a financial planner on an annual basis will help you reassess your choices and create new strategies for a secure future.
With abundance of investment options at your fingertips, navigating the different choices can seem overwhelming. By partnering with a financial adviser to create a holistic plan, they can help you answer the difficult questions—such as the benefits of a Roth IRA versus a traditional 401(k)—and identify what strategy will be best for your situation based on multiple variables.
Once you take the first step toward creating a financial plan and identifying your goals, a financial planner can work with you to create an actionable plan and identify the steps to take now to ensure you are adequately prepared today for tomorrow.
Windy L. Rudd is vice president, private banking team
leader who operates out of Columbia Bank’s downtown Spokane office.
In her position, Rudd serves clients throughout Eastern Washington and North Idaho.
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