Financial planning is not an event but rather the process of having answers to some common questions. Everyone’s answers will be different based on their circumstances. It’s often said that financial planning is similar to preparing for journey. You need to first establish where you are now, have an idea of were you want to go, determine the best way to get there, have the means of funding your trip, have contingency plans for problems along the way, and have an alternate destination if you’re unable to reach your primary destination. The questions are:
Where are you now?
What is your current financial picture? What are your assets and liabilities? What is your income and out go on a monthly or annual basis (cash flow)? How much are you or could you, save for the future of you and your family?
Where do you want to go?
Where do you see yourself in 5, 10 or thirty years? What are your life’s goals? What is most important to you? What do you envision for your family and yourself? In your future, do you see a college education, new home, new sailboat, early retirement, not out-living your assets, travel, leaving a legacy to your heirs or charitable giving?
What are the risks along the way?
Life is filled with uncertainties. It is important to identifying the risks that could jeopardize reaching your goals and have contingency plans should problems occur. The options are to accept, transfer, share or mitigate these risks.
How are you going to get there?
Most goals require a certain amount of money. Do you know what your goals will cost? Where will the money come from to reach your goals? Will you have enough? When can you retire comfortably? Will you need to work longer than expected? Are your goals obtainable? Are you saving enough in order to have enough for later? Are your investments working as hard and safely as they might? Are your investments suited to your risk tolerance? Are you spending more for fees than necessary for my investment program? Do you even know what those fees are?
What are your alternatives?
Your goals should be prioritized so that resources can be dedicated to what’s most important in your life. Part of the financial planning process is to monitor your progress and re-prioritize your goals so you have the peace of mind knowing you will reach those goals that are most important to you.
What happens when you’re gone?
How do you pass on your estate to your beneficiaries in the most cost-effective, timely fashion and with the greatest amount of privacy? How do you minimize hard feelings, intra-family bickering, threat of the lawsuit and other poor feelings when you are gone?
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