In honor of National Financial Planning Week Oct. 4-9, certified financial planner James Daniel of The Advisory Firm wanted to dedicate this column to myths, misconceptions and realities about Financial Planning.
Q: Isn’t financial planning something that only rich people need?
A: That is a great question. It is very easy to feel that way when you think about Wall Street and terms such as “Wealth Manager” and “Private Banker”. However, the truth is financial planning is about setting financial goals and building your own personalized strategy for the future. It matters not if you have $10,000 or $10 Million. All that is required is a desire to make smarter money decisions, the ability to set some financial goals and the discipline to act on it.
Q: If a financial plan works for everyone, what exactly does it cover?
A: Think about it this way, the typical person has many pieces of their financial puzzle scattered about: a couple of old 401k’s, a few mutual funds, an old life insurance policy and maybe some remote idea of their company benefits. A financial plan is designed to review all the key areas and to make sure all those pieces fit together in a cohesive strategy. It begins with a review of your Cashflow and Net Worth to make sure you know where you stand currently and to give you benchmarks for the future.
The next area would be a review of the so called “safety net” components that protect your family or yourself from unforeseen events: Life, Disability and Long Term Care Insurance on the risk management side and Cash Reserves for short term emergency money on the financial side.
Your plan would then hit the bigger goals in life such as Retirement, College or any other savings goal you may have and then incorporate Investing and Tax strategies as a component of those longer term goals. Finally, you wrap up your plan with an Estate strategy, which is basically figuring out what happens to everything you have worked for when you are no longer around.
Q: It sounds a bit complicated, is there really any benefit?
A: If you are reading this post (and Rana’s Blog) then you already have a desire to save money and do better financially, so you are taking the right steps. The fact is there are numerous resources available on the internet or in bookstores that could help educate you about the basic building blocks of a financial plan. It really doesn’t have to be complicated. But to answer your question there have been studies showing that people who have a plan are in much better shape financially than those that do not. You know the old saying “those that fail to plan, plan to fail”, it’s not just a funny cliché as we are all learning over the past couple of years that you can’t take anything for granted when it comes to financial security. Things can change quickly.
Q: I am not sure if I can do this on my own. Where could I find more information on working with a professional Financial Planner?
A: Here are some resources for you:
Do you have a question for a financial adviser? Email firstname.lastname@example.org. Questions are answered every Wednesday here on the blog.