The Importance of a Financial Plan
Have you ever gone out for a run without knowing how far you would run or how long it might take? Or how about leaving on vacation without a destination or knowing the length of time you would be gone? Most likely you’ve planned these things out without even consciously choosing to plan.
In the world of financial advising there are two main practices: Financial Planning and Investment Management. People often want to invest their money with a simple goal in mind, but don’t incorporate the overall household financial plan. The financial plan is the road map to where, when, why and how long. Your investments are a tool that help you reach your goals and they should be selected, managed, and monitored with specific measurable goals as a target.
Just like leaving on vacation without a destination, you might end up somewhere you never intended. That same thing can happen when your investments are managed without a goal in mind. The financial plan will give us our target but will also walk us through how to make that goal happen. I can plan for two people who are the exact same age and same professions, but this does not mean they will retire in a similar way. One client may have goals in retirement to vacation, golf, boat, ski, etc. while the other client may want to garden and sit on their back porch with a glass of tea. No two financial plans look alike, and that is why the financial plan tells us so much more than “Do I have enough money to retire.”
Some of the driving factors in a retirement financial plan are:
How long do you have until retirement?
What are your lifestyle goals in retirement? Are these needs, wants, or wishes?
What are your debts and liabilities? What does your cash flow look like?
What are your assets?
Do you have heirs you want to leave money to?
How is your health and what healthcare do you use?
Of course, some plans can be more complex and others can be simple and just beginning. Knowing your goals and matching them to your resources will shine a light on your problem areas and help you stay on track. It will help you understand if there needs to be increased contributions, postponed retirement or decreased spending. How would we know which path to take without a financial plan in place to guide us?
Retirement planning is a common component of a financial plan, but you may also need to plan for college, insurance, longevity care, taxes, your estate, charitable giving and other major life events and purchases. Dream big, quantify those goals, and revisit them frequently to keep yourself on course. If you don’t feel prepared to do this, visit a financial advisor who can help you turn your financial dreams into a financial plan that will move you toward the finish line.
The content of this blog is for informational purposes only and should not be construed as investment, tax, or estate planning advice. Skyline Advisors, Inc. is an SEC Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where representatives of Skyline Advisors, Inc. are properly licensed or exempt from licensure. If indices are referenced in marketing material, it is important to note that these cannot be invest in directly, any vehicle such as Passive index-based ETFs and Mutual Funds which attempt to replicate indices have internal expense ratios and other associated costs that would negatively impact returns. No advice may be rendered unless a client service agreement is in place. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.
