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I’m thrilled to welcome back my fierce friend, Peggy Doviak, to share her wisdom on how to create a financial plan.
Peggy is the author of 52 Weeks to Prosperity along with other blogs posts you can find on Fierce Beyond 50 like: paying for college, advice about prosperity vs. money, setting financial goals, saving for retirement and curbing your holiday spending. She has a wealth of advice and we’re all better served by having a professional like Peggy in our corner!
Is there anything more fun than college football? Possibly, creating a financial plan. You don’t agree? You might be surprised to learn that football and finance have more in common than you might think. They both require a good offense, a solid defense, and some effective special teams.
Here’s how to create a financial plan that will set you up for success!
Football Starts With Offense
To play financial offense, you have to be proactive with your money. Your game plan begins by creating a budget. Take a nonjudgmental look at both your income and your spending. Once you know where you are, organize your information into expense categories and reasonable targets. You can make some spending adjustments if necessary.
Your budget and cash flow analysis provide the information that will drive the creation of your emergency fund, life insurance needs, and retirement requirements.
Your next offensive move is to participate in your company retirement plan. At a minimum, you should take advantage of any employer match. If you don’t have a plan at work, then open and fund an individual retirement account (IRA). It’s important to save enough money to allow you to have a comfortable retirement. This can be scary when you remember that if you retire at 65, the money might need to last for 30 years or more! You might want to talk to a financial planner rather than scrambling by yourself.
Keep The Football Moving
Finally, move your financial football by reviewing your investment portfolio holdings. The asset allocation, or how your money is invested, should match your risk tolerance level. Review your holdings and be certain you understand what they are and why you own them. Additionally, look at the fees associated with your funds to be sure they are not excessive and are appropriate to your return.
Index funds typically have lower fees than investment products with managers. The manager’s strategies or investment returns should be worth what you are paying for them. Before you finish, complete some tax planning to be sure your portfolio maximizes tax savings opportunities.
Although your financial offense is important, games are won by the defense. You must protect your financial success from tackles that bring you up short of your goals. Important steps include saving an emergency fund, having appropriate insurance, and creating an estate plan.
Play Defense
First, blitz your risk by creating an emergency fund. Although your ultimate goal is to save money to cover several months of expenses, begin by trying to save two-weeks of your bills. Once you achieve success, then save two more weeks. Then two more—until ultimately, you have sufficient savings. Emergency funds should be easy to turn into cash without loss of principal. As a result, this money is probably better in a bank than in the stock market. A market correction right before an unexpected expense could leave you without enough money.
Then, block potential financial disasters by purchasing adequate insurance. If your beneficiary is your partner, your budget and cash flow needs can help you purchase the correct type and amount of life insurance. Basing your insurance purchase on the money needed for your heirs to live comfortably through all stages of their life provides a better estimate of your need than using a rule of thumb (like a multiple of your salary) or simply selecting a random amount. You should also review other insurance policies, including home, auto, disability, and long-term care for adequate coverage.
Game Plan For The Future
Your final defensive play protects your loved ones. Create an estate plan with the help of an attorney. Your documents should include powers of attorney for finance and healthcare, an advance directive (living will), and documents that distribute your assets according to your wishes. You will likely need a will and may require a trust. Don’t forget to make a list of where your assets are located and leave it in a place your beneficiaries can find. Be sure to include lock boxes, online banking accounts, and other items of value that might be difficult to find. Offense and defense play most of the game, but often, the win rests on the toe of the kicker—the special teams. Your financial special team includes a CPA, attorney, and CERTIFIED FINANCIAL PLANNER TM practitioner.
Be sure your financial professionals don’t drop the ball and provide appropriate support to help you meet your financial needs. If they don’t have adequate background in your issue, they should refer you to someone else. Further, they should talk to you respectfully and answer your questions. And remember only to do business with financial professionals who are willing to serve as your fiduciary. This means they have a legal obligation to put your best interest first.
All right, I’ll admit that creating a financial plan might not be as much fun as the Saturday afternoon game. However, the outcomes last longer and are more important—and that’s worth more than a national championship! Go team!
ABOUT THE AUTHOR
CERTIFIED FINANCIAL PLANNERTMpractitioner, Peggy Doviak, knows how stressful money can be. Her fifteen years as a financial planner and a national speaker to both financial professionals and consumers have convinced her that most people fear their money. That’s why she wrote 52 Weeks to Prosperity – Ask Peggy Doviak: What Your Accountant, Banker, Broker & Financial Adviser Might Not Tell You. In it, she addresses 52 financial planning topics to enable individuals to become comfortable with the vocabulary and issues of their financial lives, so they can participate in the planning process with a professional. Learn more about Peggy on her website, www.peggydoviak.com.
