9 Areas Where Financial Planning Is Important

January 07, 2017

“If you don't know where you are going, any road will get you there.” Lewis Carroll

Think of financial planning as a roadmap to help you make important financial decisions and to plan for your future. We all strive to have the financial resources to live a long and fulfilling life and starting to plan for that future — now — is essential.

I’ve outlined below 9 areas where you may need help with financial planning:

1. Cash flow/Budgeting – The old saying, “it’s not what you make, but what you keep,” holds true. You may be surprised that some people with high incomes are also in debt because in spite of what they make, they spend more. Understanding where your money goes and how to budget what you spend is critical to financial success. Learning to live well within your means will allow you to save and invest for your future. 

2. Tax planning – Taxes are complex and always changing. Are you making full use of what the IRS allows for credits and deductions? Are you investing in a tax-efficient manner? Can you harvest losses to offset gains? If you give to charity, do you have a large capital gain in a stock or fund that you can use for a donation? 

3. Retirement plans – Very few people take full advantage of retirement plans. Even if you are maximizing contributions to your workplace plan, are you also taking advantage of funding an IRA for yourself and your spouse? Most people I know miss this. 

4. Investments – Investing is not “playing the market” as it is often referred to or jumping in and out of stocks based on tips or your gut feeling. It’s actually a disciplined process where one invests for a long-time horizon to create a portfolio that will serve you on your journey through life. Do you understand both your capacity to take risk and the amount you need to take in order to meet your financial goals?

5. Education planning – For those looking to help fund the costs of college for a loved one, have you screened available plans both within your state and nationwide? There is a big difference between the best 529 plans and the mediocre plans.

6. Estate planning – Do you have your will, health care power of attorney and financial power of attorney in place? What about a preneed guardian for minor children?

7. When to retire/how much to spend – This is, pardon the pun, the million-dollar question for most. And while a simple question, arriving at an answer is quite complex. Doing this correctly requires specialized know-how and advanced modeling software. 

8. Social security – This is a big decision for most and you really have only one chance to get it right. Statistically, most folks don’t, as they draw their benefit too early. Also, they don’t make this decision with regard to their spouse and how to optimize the benefit over both lifetimes. 

9. Risk management – Risk is everywhere. It can either be avoided, reduced or offloaded to an insurance company for a fee. Insurance should be purchased by a knowledgeable consumer.

There’s a reason why world-class athletes work with coaches who push them to constantly improve their game.

When it comes to financial planning, everyone can benefit from having a coach working with them, too.