One of the most confusing things about money management is defining what it means to have a financial plan. This can be a challenging topic for many people and I thought it would be helpful for you and perhaps a few financial advisors for me to explain the anatomy of a financial plan. In other words, what is it that makes everything work together for the outcome you are seeking?
Know What You Want
Before you can create a financial plan, you have to know what you want. Are you saving for a new car or are you saving to retire? Will the money be used as an income source or will you be spending the money to make a purchase? It is important to know what you want and consider the big picture. Getting too narrow in your thinking and focusing on only one thing can leave you short in other areas of your planning.
Understand Your Cash Flow
In order to effectively save for your current and future needs, you must understand your timeline for when you will need to use the money you have. If you don’t understand the chronological order of your financial needs, it makes it very difficult to develop an effective strategy to actually use your money.
It is not uncommon for people to have large sums of money in retirement accounts but no money saved for anything else. They are saving for the future but have no access to the cash for things they need to do before retirement. This behavior can lead to debt and frustration.
Everything is about cash flow.
Own Your Investment Philosophy
Your investment philosophy is a belief about how you feel about the risk of the markets. It is a decision to be in the market or not to be in the market. It is a personal preference, not a right or wrong decision. If you accept the risk then own your philosophy, but keep in mind that if money is lost it simply underscores the fact that no one, regardless of your philosophy, can predict how the markets will ultimately perform.
Focus On The Outcome
Contrary to what many people believe, your financial decisions should not be focused on fees, past performance, or whether a financial product is good. I am not saying these things are not important to know and understand, but they should not be your guiding light for what to do. Your financial decisions should be focused on finding an option that best positions you to use the money you have saved when you need to use it.
Focus on what produces the best outcome.
Have A Deep Bench
Your financial advisor should be a resource for all of your financial needs. They should have close relationships with CPAs, mortgage professionals, attorneys, Social Security and Medicare specialists, and insurance relationships. All of these professionals have a role to play with your financial plan. If your financial advisor is only discussing investments and their products, it may be time to find a different advisor.
Have a team. Communicate with your team. Trust your team.
Keep Things In Perspective
A seasoned financial advisor has been in thousands of client meetings and has worked with a variety of situations. They may have a different perspective on how things need to be accomplished than you. Even though you may have strong opinions about one thing or another, be open-minded and consider your options.
You only know what you know.
Be Thorough and Avoid Shortcuts
At times you may be tempted to try to take care of one aspect of your financial situation while delaying other areas that require your attention. Your hesitation or procrastination may be a result of feeling overwhelmed or not wanting to spend the money necessary to get your entire financial plan in place. Regardless of your reasoning, allow your financial advisor to guide you and work along side of you to get your financial plan in place. If you have the right financial team working for you, this should be a fairly simple process.
A financial plan takes time to develop and should revolve around your unique situation. Taking the time to plan and hiring the right team of advisors can help in creating a lifetime of cash flow.