What is financial planning? According to the Certified Financial Planner’s Board, it involves looking at a client’s entire financial picture and advising them on how to achieve their short- and long-term financial goals.[1] A comprehensive plan can help you make informed decisions about your future, giving you a baseline and roadmap based on your goals. It’s a living document that constantly changes and reacts to your needs and market conditions, and it is an invaluable tool.
A well-constructed financial plan encompasses your whole financial picture, touching on such topics as retirement, estate, education, investment management, budgeting, insurance, taxes, and giving. In addition to finances, a good planner addresses the emotional and psychological side of planning. It’s a two-piece puzzle – financial and emotional.
Here is a look at a few of the critical financial planning areas:
- Retirement. Retirement is a primary goal for most of our clients. An analysis of your current assets, savings, spending, and goals will determine your retirement date and asset level.
- Estate. Estate planning is essential for your loved ones, and a good one can ensure your assets are in your beneficiary’s hands, not the government’s. A valid will or trust is paramount to protect your resources, and the appropriate beneficiary designations on your investment accounts, retirement plans, and insurance policies are required.
- Education. Do you have young children? If so, a 529 education account is an excellent way to save for college. The assets inside a 529 plan grow tax-free if used to pay for tuition, room, board, books, etc. Why save for college? The current annual tuition for a public college is $27,330.[2]
- Investment Management. Prudently investing your money to achieve your goals requires skill, patience, and wisdom, especially in down markets. It’s vital to your success. Are your assets appropriately diversified and in line with your risk tolerance? Investing is not speculating, so don’t gamble your assets on risky investments that could derail your plans.
- Budgeting. Do you know where your money is going? Budgeting provides valuable information on how you spend your dollars. A deep dive into your spending habits can free up assets for saving and investing. Also, a budget allows you to spend money without shame or guilt.
- Insurance. An insurance policy can protect your family and possessions. Insurance premiums are expensive but necessary, and it’s foolish to plan for your future without proper coverage. Buying term insurance is acceptable; avoid whole-life policies or Maximum Premium Indexing contracts (MPI). And, yes, a non-working spouse should purchase life insurance too.
- Taxes. Tax planning allows you to make tax-efficient decisions, especially when receiving funds from your investment and retirement accounts. It also ensures you’re making wise decisions about deductions and credits.
- Giving. Philanthropic planning benefits your bottom line and helps those in need. A gift-giving program can help charities by correctly using donor-advised funds (DAF) or charitable remainder trusts (CRT). You can also give away $17,000 yearly to your loved ones without tax or estate issues.
- Emotions. Are you ready to retire? What will you do, and how will you spend your time? Do you have hobbies? Are you prepared to donate your assets to charities or loved ones? Are you comfortable living without a paycheck? Will you move to a new state or country when you retire? Managing your emotions is just as important as managing your finances.
If you’re looking to hire a financial planner, ensure they are certified by the CFP Board. A Certified Financial Planner Participant has passed a rigorous test and years of study to obtain the valuable and powerful CFP® designation. In addition to the initial requirements, CFP® professionals must get thirty hours of continuing education credits every two years.
According to the CFP Board, 90% of consumers value an advisor’s credentials, and 86% prefer one who passed a certification exam and rigorous education program.[3] Once individuals obtain the CFP® designation, they’re now fiduciaries, required to act in your best interest. However, be warned of false prophets, especially on Tik Tok. I’ve seen several posts from financial coaches, insurance sales representatives, and influencers masquerading as financial planners. Before you commit to an advisor, check their credentials. Here is a link to find a CFP® professional in your neighborhood: https://www.letsmakeaplan.org/
Good luck and happy planning.
Let our advance worrying become advance thinking and planning. ~ Winston Churchill
February 10, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.
[1] https://www.cfp.net/why-cfp-certification/career-guide/what-is-financial-planning
[2] Money Guide Pro College Calculator
[3] https://www.cfp.net/why-cfp-certification/the-standard-of-excellence