Financial Planning
Kirby Webb
President of Generations Financial Management
Why do I need a financial plan?
Ask yourself a few questions:
- What if I changed jobs, either voluntarily or involuntarily? Could I replace my current salary? Do I need to?
- Do I know how much I need to save to reach my retirement goal? When can I feasibly retire? What standard of living can I afford in retirement?
- Will I be able to travel the way I want to? Will I be able to buy the vacation home I’ve been dreaming of? Will I be able to buy or invest in what I’ve been wanting to? Can I realistically do what I want to?
- What if I passed away prematurely, what would happen to my family?
- When is the best time to start drawing social security and what is the best way to draw benefits?
- Am I prepared should I have an unexpected illness or disability?
According to CFP.net (httpss://www.cfp.net/for-cfp-professionals/professional-standards-enforcement/current-standards-of-professional-conduct/compliance-resources/frequently-asked-questions/financial-planning), there are 6 steps in creating the financial plan:
- Establishing and defining the client-planner relationship
- Gathering client data including goals
- Analyzing and evaluating the client’s current financial status
- Developing and presenting recommendations and/or alternatives
- Implementing the recommendations
- Monitoring the recommendations
Financial planning is the foundation of every client relationship at Generations Financial Management. We believe in starting with a holistic financial plan designed around you, your family, and your goals. People have different thoughts and experiences when it comes to planning in general and financial
planning specifically. There are many aspects of a plan, but we believe the best plan is one customized to fit you—your needs and your goals.
Our written plan forces you to really think about what is important to you because it is designed around your values, goals and dreams. When it comes to planning, we use the SMART (Specific, Measurable, Achievable, Results oriented, and Timeframe) principles. SMART goals make planning more vivid and
increase the likelihood of reaching your goals. Writing down your goals and referring back to them occasionally increases your focus in and enables you to track your process. According to some studies, less than 10% of people take the time to write their goals down somewhere. Those with written goals
are 40% more likely to achieve them than if they are not written down.
People often fail to recognize that in many circumstances, not having a written plan can have consequences. For example, if you pass away without a will or estate plan, your state has a “default” plan which determines what happens to your assets and who gets your possessions. A couple of hours
of planning can resolve this, producing a document that clarifies your wishes. In such a situation, a written plan can ensure things go very smoothly. Absence of a written plan can cause additional heartache, as well as wasted time and resources.
When is the best time to create a plan? Now.
Here is a quick personal story about how not having a written plan affected my family. You may have heard or experienced a situation similar to mine. My grandfather, having completed time serving in the US Army, was in his mid 50’s and was excited about his accounting career. My grandmother, who had spent her life raising her daughters and had only a high school diploma, did not plan to work. At age 55, my grandfather was diagnosed with Alzheimer’s disease. A few short years later, my grandfather was forced to retire and my grandmother became the primary provider for the family.
Their household income was cut by more than 50%, and the retirement nest egg designed to provide them a comfortable retirement was quickly exhausted. Saving for the future was replaced with trying to make ends meet. It was a struggle to find affordable care for my grandfather during the times my grandmother worked. I was only a teenager at the time, but I remember my parents talking about sacrificing things to help my grandparents out. This lasted 6 years. At the age of 62, my grandfather passed away. My grandmother lived the remainder of her life constantly worried about how much money she had. As a result, she worked into her late 70’s and only spent money on necessities. If my grandfather would have had a written plan that included longevity and life insurance, I feel confident much of my grandmother’s stress and uncertainty would have been alleviated.
We believe in focusing on the things that are within your control in order to plan for the things that matter. If there is something that is important to you, something you are passionate about achieving, you need to create a plan—a roadmap—and lay out the steps necessary to reach that goal. A plan measures your progress and keeps the goal at the front and center of your thoughts. It is the same reason we use GPS or apps such as Waze or Google maps—we want to reach our destination. These tools also “recalculate” if they foresee a better, more efficient route to the destination or they provide warnings about a slowdown ahead. A good financial plan can do the same. Having a written plan increases the likelihood of achieving your goals.
Having a written plan also allows for change. It can be adapted to fit your future needs and goals. There are several aspects of a financial plan, and they can be customized to meet your specific needs. Retirement planning, long term care planning, legacy planning, debt reduction, tax planning, estate planning, business succession planning are some of the most popular aspects. If something is important to you, then you should have a written plan for that goal. Let us help you determine what is important to you and create a plan to achieve it. When you share your goals and dreams with a trusted partner, you increase the likelihood of those goals and dreams being realized. Having a written plan to refer back to will often produce the realization of the goal sooner than expected.
One of the biggest threats to married couples is not discussing and planning for unexpected events. But there are many expected events that get overlooked, too. Some aspects of financial planning include:
Retirement Planning – Includes reviewing goals for retirement, pension/employer sponsored plan and social security benefits, anticipated retirement income, investments, and healthcare/Medicare.
Family Needs – Includes reviewing net worth, cashflow and budgeting, potential needs for liquidity, employer provided benefits, planning for potential educational/college needs, and planning for support of aging parents.
Tax and Debt – Includes assessing taxes and implementing strategies to reduce them; reviewing any mortgage(s) and debt while creating a plan to work on repayment.
Insurance and Liability – Includes reviewing the need of protecting goals and assets with life insurance, long term care, annuities, auto and home insurance, and umbrella coverage.
Estate Planning – Includes review (and guidance towards resources when necessary) of wills, power of attorney, advance directives/living wills, trusts, asset titling, and establishing of beneficiaries.
Business Planning – When needed, includes review of business needs, cash management and capital needs, insurance needs, business valuation and succession plans.
Many people call themselves financial planners, but I think it’s very important to look beneath the surface and look for certain qualifications. The CFP®, or Certified Financial Planner, is the most widely recognized certification in the industry. The importance of working with a CFP® is that they have met and agree to a strict set of standards, and they are subject to an additional set of rules, including ethics standards. Additionally, they must maintain a working knowledge of certain topics and meet 40 hours of additional continuing education every 2 years. You verify a person’s CFP® credentials at www.cfp.net.
At Generations Financial Management, we believe an important aspect of planning is the collaboration with other professionals on your financial team, such as your CPA or attorney. It is important that your goals and plans be shared with them and that they are included in the planning process in order to ensure that you, our client, have the greatest opportunity for success in creating and executing your plans.
*Consider the statistics:
- About one third of Americans maintain a household monthly budget
- About one third of a person’s monthly income goes to housing
- About 40% of people could cover a $1,000 emergency; about 50% could not cover any type of emergency.
- About half of Americans are concerned or anxious about their financial
circumstances - About 25% of adults over 55 have $0 saved for retirement, and another 25% have less than $10,000 saved for retirement.
- Over 60% of Americans carry credit card balances; 17% of Americans have student loan debt
- More than 2/3 of people over the age of 65 will need some type of long term care (LTC) during their lifetime. 15% of people will spend more than
$250,000 on health related custodial care while the typical LTC premium is about $3,500 annually. - An average 65-year-old couple should expect to spend about $280,000 on out of pocket healthcare over their remaining lifetime.
*Stats website:
httpss://www.fool.com/retirement/2018/09/02/5-long-term-care-stats-that-will-blow-you-away.aspx