Posted by Daniel P Vigilante CPA and Profit Consultants

Some Basic Strategies to Guide Your Financial Planning

Some Basic Strategies to Guide Your Financial Planning


Creating a financially secure life can seem like a daunting task, requiring the skills of a skilled cartographer and GPS programmer. You need to know where you are today and where you want to be in X (any number) years' time. As if this wasn't a big enough lift, you're tasked with figuring out the best way to get here and there without making expensive detours.

We understand! Take a deep breath. Relax your shoulders, and read some of the listed core strategies to help guide your financial planning. It is just a few steps, and it is possible.

It will take years, even decades, to achieve some goals. It's part of the plan! But you also receive an immediate reward: a lot less stress from the moment you dive in to take control of all the financial stuff stressing you out.

9 in 10 adults say nothing makes them more confident than having their finances in order, according to a 2019 survey. This guide is your ticket to joining the happy adults. It will also help you understand the steps financial planners use in financial planning. 

One of the things a financial planner will want to find out is his/her client's personal and financial situation.


Understand the client's personal and financial situation

A CFP (certified financial planner) begins a financial planning process by asking their clients questions designed to help them get a clear idea of who the client is and what they want. Some of the questions you will be asked are qualitative and will lead to a better understanding of your income potential, family relationships, health, values, risk tolerance, goals, needs, priorities, and the current financial plan.

While some of the said questions are quantitative in nature and will lead to a better understanding of expenses, liabilities, cash flow, liquidity, income, savings, assets, taxes, government benefits, and employee benefits, insurance coverage, and client succession plans.

The consultant can ask open-ended questions to find the information needed to start the plan. This information can include a variety of topics, from financial goals to feelings about market risk and retirement goals.

The CFP will also review the client's financial information to ensure that he/she clearly understands where the client stands.

For instance, if you are working on retirement planning, some of the key information you need is your annual income, savings rate, years until proposed retirement, age at which you are eligible for social security or retirement, how much have you saved, how much will you save in the future and the expected rate of return on your investment?

The next step will be to identify certain objectives.


Identification and selection of objectives

A financial planner will use his financial experience to help his client decide his goals. They will ask clarifying questions to help identify these goals. For example, what is your time horizon? Do you want to get there in five, 10, 20, or 30 years? What is your tolerance for risk? Are you prepared to accept relatively high market risk to achieve your investment goals, or will a conservative portfolio be the best option for you?

Together, the financial planner and the client will prioritize the most important goals.

Once that is established, the next step will be to review your course of action.


Analyzing current course of action

The consultant will then review the client's current action plan to see if it guides them towards their financial goals. Otherwise, the consultant will identify alternative courses of action and inform the client of the advantages and disadvantages of each option.

Once that has been established, developing a workable financial plan is next.


Develop financial planning recommendations.

The financial planner selects one or more recommendations that they believe will help meet the client's goals. They assess each recommendation taking into account:

  • What assumptions were made to develop the recommendation?

  • How the recommendation meets the client's objectives.

  • How it fits with other aspects of the client's financial plans.

  • How high is the priority of the recommendation?

  • Whether the recommendation is independent or needs to be implemented together with other recommendations

Then they move on to the next step


Submit financial planning recommendations.

At this point, the financial planner presents the recommendations and the thought process behind the recommendations. This helps the client to make an informed decision on the relevance of the recommendations.


Implement financial planning recommendations.

Implementing the plan means putting it into practice. However, as simple as it sounds, many people consider implementation to be the most difficult step in financial planning. Even if you have the plan in place, it takes discipline and a desire to put it into practice. You may begin to wonder what can happen if you fail. Here inaction can turn into procrastination.

If your financial planner has implementation responsibilities, they'll also spell out what they are so you know exactly what actions your financial planner is taking on your behalf.

Successful investors will say that getting started is the most important aspect of success. You don't have to start with a high level of savings or an advanced level of investment strategy. You can learn how to invest with just one fund or start saving a few dollars a week for your first investment.


Track progress and update

It's called "financial planning" for a reason: plans evolve and change. Therefore, the plan should be monitored and adapted from time to time. Think about what you can change in your life, such as marriage, birth, career changes, etc.

These life events may require new perspectives or changes in your financial plans. Now think about events or changes that are beyond your control, such as tax laws, interest rates, inflation, stock market fluctuations, and economic downturns.

Your financial planner will work with you to ensure that your plan meets your goals and, if not, will recommend changes.

These core strategies are usually adopted by a financial planner to serve as a guide towards your financial planning.


Save for retirement

Even if you have decades before retirement, the time to start saving was yesterday. The longer you wait to take this great horn goal seriously, the more you will have to contribute to the good shape of the retired world.

There's no simple rule of thumb for how much you'll need to save for retirement, but a solid guideline is to have savings for retirement. If you have a pension account balance equal to twice your salary at age 35, it sets you up for success. At age 50, the goal is to have a salary that is six times as high in the retirement account, and by the end of the sixties, it is recommended to have a salary that is ten times as high.

The most reliable way to save for retirement is to use special accounts that offer valuable tax benefits. Many jobs offer retirement accounts that you contribute to, like the 401(k) and 403(b) plans, the former from private employers, the latter from nonprofits and government. And anyone with earned income can contribute to their individual retirement account or IRA in short. Many brokers offer IRA accounts.

With 401(k)/403(b) and IRA, you can choose between a "traditional" account or a "Roth" account. The difference is when you get a tax exemption.

With the traditional 401(k) and 403(b) accounts, you will benefit from an early tax reduction - your contribution reduces your taxable income for that year. Traditional IRAs can also benefit from this tax reduction earlier, depending on income. When you finally make withdrawals from traditional retirement accounts, you owe tax on every dollar you withdraw.

Roth 401(k) plans and IRAs offer tax benefits during retirement. The money you contribute today does not reduce your current income, and your contribution is made with after-tax dollars. But when you make withdrawals during retirement, no tax will be paid.


Bottom Line

Now that you know the seven steps of financial planning, you can apply them to any area of personal finance, including insurance planning, tax planning, cash flow (budget), real estate planning, investment, and retirement. While you can do it yourself, the professionals can give you valuable advice and a neutral perspective on your finances.

Whether you do it yourself or hire a consultant, remember to refer to the milestones as big changes in life or finances occur. We also recommend that you do what professional financial planners do and sit down and review the plan periodically, such as once a year.


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