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Why Financial Planning?

With so many terms and financial marketing out there, it is important to differentiate the concept of ‘Financial Planning’. Having a financial plan is much different than simply investing. Sound financial plans include the aspects of choosing investment vehicles, but also incorporate specific plans for depositing and withdrawing funds. This, frankly, is where the rubber meets the road when it comes to our money.

Choosing to invest money is an important step in saving for the future; there are likely a number of complex issues at hand when we consider funding a specific goal. Many young families aren’t accustomed to saving. Simply saving and investing as much as possible, planning to take what’s needed at the time of need, is a plan. However, the young family that does this might be losing HUNDREDS OF THOUSANDS of dollars over a lifetime to taxes or lost opportunities. This extra money can be rescued through creating a comprehensive financial plan.

What is a Financial Plan?

The comprehensive financial plan every family needs will include a number of goals or milestones for members of the family. What makes each financial event unique is the amount of money needed to achieve it – everything costs money! In addition to a cost, there are other considerations. There will be a timeframe for accumulation, a timeframe for withdrawal, tax considerations, as well as investment strategy and risk tolerance. The comprehensive financial plan ties all of these aspects together to achieve goals in the most efficient manner while taking as little risk as necessary.

There are a number of differing approaches used by planners. Further, there is no ‘one right way’ to approach a family financial plan. The most important criteria are that all the financial needs of the family are addressed with the plan and there are actionable recommendations as a result of the planning sessions. Watch for an upcoming article with advice on selecting a financial planner for your family.

Enough Money and Peace of Mind

Imagine rattling off a list of things you want to accomplish throughout your life… Here’s a typical family example; we want to maintain a comfortable amount of cash in a savings account, put our three children through college, buy a second home in a warm location, then retire at sixty and travel the world.

Now, imagine being able to put a price on each of those things and establishing a realistic plan for funding those goals. The peace of mind that can be achieved by creating a sound financial plan could be monumental. In most planning cases, there aren’t really any major surprises. Most families are aware of the fact that they spend a little too much and save a little less than they should. In other cases, families know they will be able to do what they want throughout life.

Whether a family is on the right track or not, every family will benefit from taking a look at their overall financial picture. The longer a family waits, the less time is available to work toward achieving. Time is the most important resource when it comes to financial success, and making plans earlier will definitely make things easier. If you want to have ‘enough money’ and ‘peace of mind’ – get started now in creating a comprehensive family financial plan.

Are Financial Planners Worth the Fees?

Consider the following question: Would you invest $5,000 today if it would result in an extra $200,000 during retirement? For most of us, that is a clear ‘YES’. Many financial planning cases for ‘average middle class Americans’ have contributed to making that kind of a difference in their retirement! When lifetime accumulation, tax savings, investment strategies, and distribution planning are all factored in the sum total can be astonishing.

There is a tangible monetary value to what planners can offer, but there is real value in the emotional comfort and peace of mind created by going through the planning process. Having confidence in knowing that a family can achieve all their financial goals is the ultimate hope. Isn’t it also equally important to know if something is not currently within reach? The process of having a third party look over the total financial picture (investments, insurance, income, etc) can provide a real revelation for many families.

Most families that hire financial planners and implement the plan feel good about their investment in themselves and their future. Planners will charge fees ranging from less than $1,000 to upwards of $10,000 as a flat fee for more experienced planners or more complex situations. Others will charge annual fees of around 1% of a family’s portfolio or net worth.

In conclusion, it is my opinion that getting your family on the right track to achieving financial security is worth something. Hiring a planner can be an expensive step, but the returns on that investment can be tremendous. Get started on your family financial plan today! You won’t regret it.

Collin Hedegard, RIA