a financial plan is not - blog - financial meeting with advisor, shaking hands
a financial plan is not - blog - financial meeting with advisor, shaking hands

What a Financial Plan is NOT

Any financial planner worth their salt will not simply sell you financial products, review your portfolio, or conduct an insurance analysis or retirement assessment. Of course, these elements are essential parts of a financial plan, but by no means do they represent the whole. The core of your financial plan is you—not the products, services, or proprietary strategies someone is trying to sell you. Your hopes, dreams, fears, concerns, priorities, goals, values, and aspirations should be the driving force behind all your financial planning efforts. 

What IS financial planning?

The Certified Financial Planner Board defines financial planning as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances”. 

Financial planning includes investment, insurance, tax, estate, retirement, and cash flow planning, but they need to be structured holistically and put to work for your unique position. The whole is greater than the sum of its parts. Without taking your entire financial situation into consideration, any recommendations regarding specific elements of your financial plan may not be the best solution for you. 

Let’s dive a little deeper into the components of financial planning. 

Cash flow and budget planning

Cash flow planning and budgeting are NOT just for those living paycheck-to-paycheck. Every individual, household, and business budget is the backbone of a sound financial plan. Budgeting is never a one-and-done activity; being complacent could mean waking up to dwindling cash without sufficient funds to get through the end of the month. You need to continually review your financial position and adjust your budget accordingly.

Investment planning

Investment planning is NOT merely buying the stocks, bonds, mutual funds, equities, and ETFs that are making headlines. You need to consider how all the assets you are exposed to (or want to dabble in) intersect with your life and move you closer to your goals. Investments are any assets or items acquired with the goal of generating income or appreciation (rather than consuming them immediately). As such, your investment plan should also include any real estate, commodities, entrepreneurial ventures, and alternative investments, such as non-fungible tokens (NFTs) or art. Robust investment planning considers your financial position, preferences, risk appetite, and goals to help you create a diversified portfolio. 

Want to become a millionaire? Stick to the basics.

Insurance planning

Insurance planning is NOT just about buying the insurance products that an agent says you need. First, you need to understand the level of risk you face and the types of risk you’re exposed to. Once you have conducted a thorough risk assessment, you’ll be better positioned to reduce and mitigate your risk accordingly through carefully considered insurance products. You’ll also want to review your policies on a regular basis to ensure you have the right amount of coverage and appropriate deductibles for your situation.

How to prepare your business for the next hurricane.

Tax planning

There’s a big difference between tax planning and tax return preparation. Tax planning is NOT sending your tax return details to your accountant at the last minute or estimating numbers to input through an online tax service. Failing to understand and plan your taxes may leave you missing out on potential benefits and even paying more than necessary. With effective, ongoing tax planning, on the other hand, you may be able to pay less tax overall, implement tax planning ideas, leverage annual tax changes, and secure a larger refund at the end of the year. 

Education planning

There’s more to planning for education than choosing what kind of loan to apply for or occasionally contributing to a fund designed to help families pay for college. Some simple planning and calculations can help you (or your children) graduate college in the strongest possible financial position: 

  1. Calculate the costs and timelines 
  2. Identify what resources you already have
  3. See if you qualify for federal loan programs or other types of aid 
  4. Have an honest family discussion about who will be paying for college
  5. Go back to step 1 based on what you know now 
  6. Consider your options for making up the difference between budgeted costs and available funds
  7. Establish a deliberate savings plan (consider a 529 education savings plan

Retirement planning

Retirement planning is not about grinding away at a job you don’t enjoy so you can squirrel away as much of your income as you can in an IRA or 401(k) until you can finally retire. Of course, planning for the future is a crucial part of your financial plan, but so is investing and enjoying the present. Carve out a career that you enjoy, invest in your own development, save effectively for future financial independence, and make sure to set money aside for your immediate and mid-term goals. And remember, when it comes to retirement, the earlier you start, the better. 

Read more about common misconceptions about retirement planning. 

Estate planning 

First and foremost, estate planning is NOT something to be ignored, no matter your age. It’s also not blindly adding your initials to documents you don’t understand. Your estate plan is crucial to protecting your wealth, determining your asset distribution for the next generation, and deciding on the kind of legacy you’d like to leave. Some of the elements to include in your estate plan include: 

  • Your will
  • The amount required for your heirs’ financial security
  • Your assets and potential tax requirements
  • The number and types of your investments and insurance policies
  • Healthcare directives
  • The plan for the distribution of your assets
  • Powers of attorney
  • Living wills and advance directives

Read more: 7 factors to consider in your estate planning 

This IS financial planning you can trust 

At Financial Solution Advisors, we offer personalized financial guidance for individuals and businesses. Our CPAs partner with you to meet your evolving business, tax, and financial planning needs. Get in touch to learn how we help you make informed decisions and achieve your goals by assessing your complete financial picture.

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