FINANCIALLY
Speaking
Putting the Big Picture in Perspective
by
Daniel T . Newquist , CFP ®, AIF ®
Daniel T . Newquist , CFP ®, AIF ® is a Principal Investment Advisor Representative with RNP Advisory Services , Inc . in Morgan Hill , with over 16 years ’ experience advising clients on their personal wealth , retirement planning , investments and business planning needs . Visit his website at RNPadvisory . com or call 408-779-0699 .
Earlier this year my son announced that he had decided on “ the car ” he wants me to buy him for his sixteenth birthday . I chuckled , he ’ s only twelve and the car he wants , a classic , is priced over $ 40,000 . Rather than squashing his dream , I decided this was one of those teachable moments and proposed that if this is truly his goal , then we need to develop a plan to get there . So we went about the task of developing his financial savings plan ( allowance , chores , selling his Legos , etc .) and reducing his spending ( iTunes , Xbox games ) to achieve this goal .
This meaningful lesson with my son is not unlike the many conversations I have with clients when it comes to their own financial goals and objectives .
Bringing all the pieces of your financial life together is a challenging task . However , in today ’ s economic environment , more than ever , it ’ s important to put a plan in place . Even a basic plan is better than no plan . Do you picture yourself owning a new home , saving for education , starting a business , or retiring comfortably ? Having a plan can help increase the likelihood of reaching these important goals .
Why is it so important ? A comprehensive plan serves as a framework for organizing the pieces of your financial life and forms a clearer picture of where you are and how to get to where you want to be . With a plan in place , you are more able , and likely , to focus on your goals and what it takes to reach them . You will better understand how focusing on one goal , will impact your ability to reach another goal . And the plan is flexible – as your situation changes , so must your plan .
Creating a sound financial plan is a process . While some people decide to do their own financial planning , you may want to consider working with a financial planning professional to bring clarity to all of your finances , help prioritize your goals and develop suitable strategies for your unique situation . These credentialed professionals , such as a CFP ® ( Certified Financial Planner ) or a ChFC ( Chartered Financial Consultant ), have extensive training in the financial planning process and are held to high ethical standards .
Getting started The financial planning process requires some work ; it ’ s a team effort that requires both spouses , if married , and your planner . The basic steps include :
• Gather information about your finances . Before you can determine where you are going , you need to figure out where you are right now .
This requires gathering up all of your current financial information to determine :
1 . Your net worth – the total of your assets ( what you have ) less your liabilities ( what you owe )
2 . Your income and expense relationship – ( what you earn and what you currently spend )
• Determining the above figures builds the foundation for your financial plan , helps avoid potential financial setbacks , deal with major life changes , avoid debt and credit problems and decide where to put your money to achieve your goals .
Set goals It ’ s essential to set goals that are clear and measurable . We all want to live comfortably in retirement , but what does that mean ? Does it mean a smaller house , travel , or a certain income level ? Clearly defined goals are easier to work toward and measure . Be specific , “ When I retire at age 68 , I will require $ 5,000 per month from my retirement and investment accounts for 20 years .” This will be different for everyone , but you get the idea .
Analyze and strategize Each goal in your financial plan is interrelated to another . Analyzing and strategizing how best to prioritize and achieve your goals is essential . For example , understanding how your goal of buying a vacation home will affect your retirement goals .
Develop and implement your plan Your financial professional will develop recommendations on how best to work toward your goals . This could include budgeting , investment strategies and policies , debt reduction , establishing an emergency fund , coordinating with your tax and legal advisors , and serving as your coach through the entire process .
Monitor progress and make necessary adjustments to stay on track The process doesn ’ t end once your plan is created . As you work towards your goals you and your financial professional should meet at least annually to track and monitor your progress . More frequently if sudden , unexpected life events occur such as a career change , inheritance , illness , job loss , etc .
As your financial life becomes more complex , so will your plan . Open and ongoing communication with your financial professional is vital . During my last meeting with my son we uncovered some new goals that interfere with the prioritization of saving for “ the car .” We are currently reevaluating his savings strategies and the car goal has since been revised to a more reasonable one .
This article is intended for educational purposes only . It is not intended as investment advice . Consult your financial or tax-planning professional for guidance on your specific situation .
6
M O R G A N H I L L T O D A Y S U M M E R 2 0 1 3