Am I saving enough? Will I have enough to maintain my current lifestyle in retirement? Should I convert my IRA to a Roth? What’s the best way to save for college? How much risk do I need to take in my portfolio to meet my goals?  What ARE my goals?

If you have ever asked yourself one of these questions, you could benefit from doing some financial planning. In a Financial Plan, you evaluate your entire financial picture, set short and long-term financial goals, develop strategies to achieve those goals, then monitor and adjust the plan regularly as life changes.

Why should you take the time to do this?

Doing a financial plan requires time and effort – it involves gathering information and looking at numbers you might prefer to avoid, but in the end, the benefits far outweigh the costs. A little bit of work may save you a lot of money and anxiety down the road. Many people get overwhelmed by their finances and  don’t know how much they are spending or what their goals are. They just hope everything will work out. Maybe it will, but hope is not a strategy. Even if you do a plan and find you are not exactly where you would like to be, it is far better to know and be able to make the appropriate changes.

Doing a financial plan will:

  • Make it easier to make decisions
  • Help you make the most of your assets
  • Help you avoid financial disasters
  • Give you financial peace of mind

What exactly is in a Financial Plan?

In a plan, we project your future cash flows and net worth based on income, expenses, and the estimated growth of your assets. You can see what your financial picture would most likely be in future years and answer those nagging questions we mentioned above.  We can also run scenarios to show what the projected impact of decisions would be – how would buying that vacation home, retiring 5 years earlier or paying off that loan affect your bottom line? Regardless of the questions you want answered, any comprehensive financial plan will address the following core components:

How does Financial Planning work?

The following outlines the main steps of the financial planning process.

  • Calculate your Net Worth

Add up all your assets (savings, real estate, real property, etc.), subtract any liabilities (mortgage, loans, etc.) and the resulting value is your “net worth”. It is helpful to compare this year to year and see how it is growing (or declining)!

  • Set Financial Goals – Both Long-term and Short-term

The point of the plan is to reach your goals, so it is important to spend some time at the beginning of the process, really thinking about what your goals are and putting them in writing. They should be specific and measurable.  Short-term goals might be paying off a liability, setting aside an emergency fund or following a budget. Long-term goals might be more focused on funding a certain lifestyle in retirement, paying for your children or grandchildren’s education or leaving a certain inheritance.

  • Create a Budget / Savings Plan

The best way to meet your goals is to create and follow a budget and savings plan. There are many apps available to help you track spending going forward.  You should review your budget every year to see what needs to be adjusted.

Finalizing your budget allows you to see how much you can put aside every month or year. Automatic transfers to savings are the best way to do this, as money left in your checking accounts tends to get spent. How much you are putting aside and where you are putting it are crucial. A review of your overall financial situation will help determine where you should be saving money – retirement accounts vs. taxable savings, etc.

  • Plan for Taxes

It is important to keep your tax obligations in mind and have the appropriate funds set aside as needed. The last thing any of us wants is to get a tax bill we aren’t expecting and to have to sell investments (when the market might be down) to cover the bill.

  • Manage Debt

Debt should be used judiciously with a focus on the types of loans that provide a financial advantage. It is prudent to pay off or refinance any high interest rate debt that you have as soon as possible.

  • Investment Strategy

Once you have determined your goals, you need to put into place an investment strategy to achieve them. We work closely with our clients to implement a strategy tailored to their individual risk tolerance, investment horizon and cash flow situation.

  • Insurance

It is important to review all your insurance policies (life, homeowners, auto, umbrella, etc.) to ensure you have adequate coverage. Discovering a shortfall after the fact could be devastating to your financial situation.

  • Estate Planning

Putting the proper mechanisms into place is critical to ensuring your assets are distributed according to your wishes after you are gone. If your assets are large enough that they will be subject to estate taxes, you may want to work with a Trust and Estate attorney to explore ways to minimize the impact. Even if you don’t have a taxable estate – everyone should have a will, a financial power of attorney, a health care power of attorney and a living will. If you die without a will (or “intestate”), the laws of the state where you live determine what happens to your assets.  Not only are you not in control but it is a complicated process which will cause additional stress to your survivors at a very difficult time. It is also important to check your beneficiary designations on all life insurance policies and retirement accounts to ensure they reflect your current wishes.

  • Monitor and Review Regularly

Once your financial plan is complete, you should look at it regularly – normally every one or two years or if something changes significantly in your life.

As you can see, having a financial plan makes sure all of your bases are covered and enables you to track your progress towards financial success. At Eagle Ridge, we continue to invest in our financial planning capabilities and encourage you to contact us if you would like to discuss this further.