The last few years, for me personally, have been filled with studying for (and passing) the CFP exam. After passing the exam, I realized just how much goes into financial planning for a client. For some clients, not every area of financial planning will be applicable to their situation. It’s still incredibly important to understand the process, and how everything flows together. Let’s take a look at some the key pillars of financial planning:
The Pillars of Financial Planning
- Cash Flow and Balance Sheet
Every financial plan should start here. It is the lifeline of every person’s financial life. Without having your cash flow and balance sheet in order, creating a successful financial plan is nearly impossible. Cash flow is as simple as tracking a person’s monthly inflows versus their monthly outflows. How much money is coming IN versus how much money is going OUT. It’s going to be REALLY difficult to save money, and prepare for any future financial goals, if a person is spending more money than they’re making.
The cash flow and balance sheet portion of your financial plan is where you can establish a budget for certain items, create your emergency fund, and determine where excess funds will go to save for future plans.
- Investment Planning
When it comes to financial planning, you can’t put the cart before the horse. Taking care of your cash flow and balance sheet allows you to properly allocate your investments. Not the other way around. Something we say here at Mullooly Asset Management is that you can’t invest your way out of a bad savings plan.
Investments can help you reach your goals when layered on top of a strong cash flow plan. You’ll know just how much risk you should, or should NOT, be taking to achieve your goals. It really takes some of the stress out of investment decisions when you know how and why you’re choosing your investments. The key to increasing your odds of success with your investments is to build enough TIME into your plan to allow the investments to work.
- Education Planning
For many people, a piece of the financial planning process entails saving money for school. Whether it’s for your children, or for yourself, school gets expensive. Even today, private high schools and other private schools can cost almost as much as year’s tuition at college! And we all know the direction college tuition has been trending the last several years. School is expensive! But it doesn’t mean that should prohibit you from taking advantage of opportunities. It just needs a little bit of planning ahead of time.
- Retirement Planning
Even though the concept of retirement is always changing, the need for ample money in retirement will remain constant. For some people today, retirement can last over 30 years! That is a LONG TIME. Working with your cash flow, balance sheet, and investments, folks can identify how much money they can afford to put away for retirement. They can identify what type of accounts to put the money in. And they can also identify what kind of investments will give them the best shot at reaching their retirement goals in the given timeframe. Something that remains true about every section discussed so far is that these things need to be planned out FAR in advance. Having said that, if you haven’t started yet, the best day to get started is TODAY!
- Tax Planning
Having worked for an RIA for seven years now, one main them I’ve heard from clients is their desire to pay as LITTLE in taxes as possible. In the world we live in, Uncle Sam always gets what’s coming to him, BUT there are strategies to implement to MINIMIZE that amount. Whether it’s discussions about asset location (tax-deferred vs taxable accounts), tax loss harvesting, realizing capital gains, or how to report things on your tax return, a CFP can help you work through ALL of it.
- Insurance Planning
Here at Mullooly Asset Management, we don’t sell insurance policies. But that doesn’t mean we can’t help you determine your insurance needs. Sometimes folks have way TOO MUCH insurance, and sometimes they have none at all leaving their families vulnerable. After working through the details of your financial situation, determining the proper amount, and types, of insurance is critical! Being over-insured can be an unnecessary cost with dollars that can be better allocated elsewhere, and being under-insured leaves you and your family vulnerable and potentially on the hook if disaster strikes.
- Estate Planning
Nobody likes to be morbid, but EVERYBODY needs some sort of estate planning. Plenty of people confuse paying estate taxes with estate planning. While it’s true, MOST people will not pay estate taxes, it’s still very important to have a basic estate plan. Figuring out how to title accounts, name beneficiaries, have an up to date will and powers of attorney, gifting strategies, or charitable giving strategies – the financial planning process covers it all!
So much more goes into the financial planning process. The beauty of the process is that it’s a PROCESS! It’s not a one-time event. Your life is constantly evolving, and so should your financial plan. That’s why at Mullooly Asset Management, we believe in the ongoing financial planning. Building a relationship with a financial planner can be one of the best decisions you’ve ever made. You don’t have to make the hard financial decisions in life alone.
If you’d like for us to take a look at your financial picture, click here to schedule a meeting! There is no cost or obligation.
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