What is a Financial Plan?

What is a Financial Plan?

What is a Financial Plan

We all have things that we would like to achieve before we die.

Life goals can include saving for your kids’ college education, owning a beach house in Malibu, buying a Lamborghini yacht (yes, they exist), retiring comfortably, or having more time to spend with family rather than Cara and Peter in the office.

To achieve these goals, you need to be focused and financially organized.

A financial plan helps you make sensible money decisions that can help you achieve your goals in life.

So, What Exactly Is A Financial Plan?

A financial plan is a detailed overview of your current financial situation, (short, medium, and long-term) financial goals, and an in-depth strategy to achieve them.

Besides helping you realize your dreams, a financial plan will make you feel in control and give you the comfort of knowing that your financial life is in order.

To be effective, a financial plan must be:

  • Written down. A financial plan doesn’t exist if it’s not written down
  • Touching every aspect of your finances
  • Realistic and achievable
  • Agreed with your partner (if you have one, i.e.)
  • Regularly reviewed and updated

Depending on your goals’ time horizon, a financial plan can stretch over months, years, or decades.

Benefits of A Financial Plan:

Having a solid financial plan brings forth an assortment of benefits that include:

  • Better management of personal income
  • Clarity in retirement objectives
  • Improved preparation for future expenses
  • Reduced risk of debt
  • Increased likelihood of personal and financial success
  • Decrease in anxiety, worry, and stress levels

Money, if it does not bring you happiness, will at least help you be miserable in comfort.” – Helen Gurley Brown

Components of a Good Financial Plan

Understanding what goes into creating a financial plan can mean the difference in your financial success.

A financial plan is a broad umbrella that covers multiple aspects of your financial life.

To lay the groundwork for a solid financial foundation, it pays to understand what each of the aspects entails.

Here’s a quick crash course on the components of a good financial plan:

  1. Financial Goals

Making a financial plan is useless if you have no idea what you want to accomplish with your money.

So, whether you want to make the plan yourself or work with a professional, it should start with a list of your goals, both small and big.

A good strategy is organizing your goals according to how soon you want them accomplished:

  • Long-term goals are those a decade or more away and can include buying a home or planning for retirement
  • Medium-term goals are those you intend to achieve in the next 5-1- years and can include starting your own business or putting a down payment on a property
  • Short-term goals are those you hope to achieve in the next 5 years or less and can include buying a new car or paying down debt

For each of the goals, specify a dollar figure and a target date. Being specific helps you to measure your progress towards the goals.

  1. Budgeting

A budget is one of the most important personal finance tools, but it can be a scary four-letter word if you’ve never had one before.

Simply put, a budget is a plan for how to spend your finances. By creating a detailed written budget, you can see exactly where your money is going and make better spending decisions.

As you approach retirement, you’re faced with so many financial decisions, and keeping track of everything can seem like an Olympic sport. This can ultimately lead to overspending and debt.

A budget lets you see how much money you have, what you spend it on, and how much is left over.

Once you get a hold of the inflows and outflows of your cash, it’ll be easier to optimize your spending to cut back on unnecessary stuff such as unused subscriptions, morning lattes, takeouts, etc.

  1. Emergency Planning

The bedrock of any financial plan is stashing money away for surprise expenses.

An emergency or rainy-day fund is a go-to pool of cash you can dip into when unexpected expenses come knocking. It will help you avoid tapping your long-term savings whenever the need arises.

It would be best if you tried to save 3-6 months’ worth of living expenses (housing, utilities, transportation, and groceries) in a separate, highly liquid savings account.

Don’t put any of this money into an investment that will be hard to convert to cash at short notice (read immediately).

Also, only dip into the emergency fund when you have an urgent and pressing expense. Buying the latest iPhone is not an emergency expense.

  1. Investment Plan

Your financial plan should include an investment plan/strategy.

If you have a long time before retirement, it may make sense to be more aggressive with your choice of investments.

If retirement is fast-approaching, be conservative in your choices as you build a portfolio.

It would be best if you also diversify your investment portfolio by picking stocks, bonds, and funds that suit your risk tolerance and time horizon.

Diversification means that if one of your investments dips, another will balance things out.

Beware of investment scams that promise you quick returns. The safest way to double your cash is to fold it and put it in your wallet.

  1. Credit and Debt Strategy

Using credit and taking on debt is not necessarily a bad thing.

Generally, there are two kinds of debt: bad debt and good debt,

When you take a mortgage loan to buy a home, you may be taking on a lot of debt, but the lower interest rates and appreciating property value make it an acceptable form of debt.

On the other hand, doing impulse shopping using a credit card with a 20 percent APR without paying it off in full every month is bad debt. This is because you’re purchasing things that don’t grow in value and, in the process paying steep interest.

If you have high-interest debt that contributes to the reduction of your income, you can write it down and determine the best way to pay it off to avoid trouble. In the words of Earl Wilson, “if you think nobody cares if you are alive, try missing a couple of car payments.”

Getting out of debt can be a painstakingly difficult undertaking. You can tackle debt using approaches such as the Avalanche method, Snowball method, and Debt consolidation.

  1. Retirement Planning

With the uncertainty of Social Security and fewer American companies offering full pension plans, it is now more important than ever to start saving and planning for retirement.

Retirement savings should become a priority instead of an afterthought.

The IRS has made saving for retirement more attractive with special tax-advantaged accounts such as individual retirement accounts (IRAs), employer-sponsored plans, and special retirement accounts for the self-employed.

  1. Tax Strategy

Creating an income tax plan is vital for your overall financial plan.

Not planning for taxes can lead to a negative financial impact during tax season.

To minimize the impact, ensure you allocate a fixed amount of income towards tax.

Since tax laws and regulations change every year, your tax plan needs to be reviewed annually. Organize a sit-down with a tax professional to determine the deductions that you may be eligible to take.

  1. Insurance

You have worked hard to build a solid financial foot for yourself and your loved ones. You now need to protect it.

Disasters and accidents can and do happen, and without the right insurance, they could lead to financial ruin. Some of the covers to consider include auto insurance, homeowner’s insurance, life insurance, health insurance, and disability insurance.

But be careful; there’s a fine line between having sufficient insurance and being over-insured. To avoid being over-insured, evaluate your financial situation and ask yourself where the insurance gaps are.

The following factors might affect your insurance needs:

  • Age
  • Health
  • Economic status
  • Family status
  • Profession
  • Assets

Also, review and adjust your coverage wherever necessary to ensure you’re protected against every possibility.

  1. Estate Planning

Estate planning involves arrangements for the benefit and protection of your heirs.

Your estate plan should include plans for how your assets will be distributed upon your death, as well as who will be authorized to make key financial and medical decisions for you in case you’re incapacitated.

Many people put off estate planning either because they don’t want to talk about death or because they think they have plenty of time to do it later. It’s vital to understand that death is inevitable and can happen anytime. In fact, estate planning is essential for anyone above 18 years of age.

Without an estate plan in place, your loved ones may have trouble accessing your accounts. Aim at having at least healthcare and financial powers of attorney in place.

Other documents can include:

  • Durable powers of attorney
  • Wills
  • Living wills
  • Trusts
  • Advance directives

Why is Financial Planning an Ongoing Process?

Often, Americans set up financial plans with good intentions. However, these plans fail to meet their expectations because of the lack of an ongoing review against their original objectives.

Your financial plan shouldn’t be treated as a static document.

Financial planning is an ongoing process because things change and when they do, they can significantly impact the direction your planning may need to follow.

These could be personal changes in your:

  • Personal circumstances like divorce, ill-health, death in the family, change of job, etc.
  • Income – may increase or decrease
  • Expenditure – may also increase/decrease
  • Liabilities – may start, stop, increase or decrease
  • Assets – you may land a windfall or inherit property
  • Change of risk appetite

Or the changes could be outside your controls:

  • A change in the political environment
  • A change in government policy
  • Property market changes
  • Stock market highs and lows

As a rule of thumb, aim at reviewing your plan annually and making changes as needed.

Seek Help

While you can craft a financial plan yourself, it’s a remarkably difficult process. You can instead enlist the help of a professional financial planner.

The most important decision you will make is at the start when you select the professional with whom you’ll co-create your financial plan. Only registered financial professionals can give formal advice. These are regulated and adhere to strict planning and advice guidelines set forth by FINRA and the SEC.

At WWM Financial, we understand that everyone is different, and no two people will have the same needs.

We help you build a unique, solid financial plan by following 6 steps of the financial planning process:

  1. Initial consultation to establish your short, medium, and long-term goals in life
  2. Work out what assets and liabilities you have
  3. Evaluate where you are today relative to your financial goals
  4. Co-develop a route map for achieving your unique goals
  5. Implement your plan
  6. Monitor and review your plan at least yearly and adjust when needed

Our success at WWM Financial has been founded on three simple maxims – professionalism, integrity, and impartiality.

We offer a high-quality bespoke service to our clients over the long term. This ethic has helped us build excellent relationships and earn loyalty from our clients and other professionals with whom we work.

The Takeaway:

Creating a financial plan is undoubtedly one of the best things you can do with your income. Once you implement your plan, attaining personal goals and financial freedom becomes a step closer.

A goal without a plan is just a wish – Antoine de Saint-Exupery (French writer).

If you would like to get started with your own financial plan or have us review your current plan schedule a free consultation by clicking on the link below.

WWM Financial is an SEC Registered Investment Advisor

Decrypting the Investment Industry Puzzle

Decrypting the Investment Industry Puzzle

Decrypting the Investment Industry Puzzle

By Scott McClatchey, CFP®

Confused by all the industry jargon many financial professionals like to use? You’re not alone. Equity, fiduciary, wirehouse, robo-advisors, fixed income, and ETF’s are but a few words which may be confusing if you’re not familiar with this industry. In this article, I’ll hopefully give you a better sense what all these terms – and a few more – mean in simple, understandable language. My intent is to de-mystify the investment industry and provide a sort of “decoder ring” for consumers to use.

If you’re searching for an investment professional to manage your portfolio or need a financial planner to help with retirement planning, the financial services industry offers two very different business approaches. The “wirehouse” model consists of financial professionals who work for a large firm, typically with a national footprint, and receive support and benefits from that firm. Many wirehouses are divisions of the banking conglomerates. Sometimes these wirehouses will feature proprietary investment offerings along with cross-branded service offerings.
The other model consists of “independent” financial professionals working as independent contractors either in conjunction with a broker/dealer or a registered investment adviser (RIA). Independent financial professionals generally own their own computers and office equipment, rent office space, pay their own phone and Internet bills, place their own ads or sponsorships, and purchase wholesale account services to conduct their business. These “independents” are business owners just like locally owned restaurant owners, chiropractors, plumbers, or auto mechanics.

I am an independent advisor, for example, as are the other client-facing advisors at WWM Financial, which is set up as an RIA. In 2007, I co-founded Alliance Investment Planning Group, located in Carbondale, IL, which is affiliated with the largest independent broker-dealer in the U.S. These are two examples of the “independent” model. A notable difference is in naming conventions: Wirehouses have branches of the parent firm located throughout the U.S., all carrying the name of their parent company. Whereas independents generally create their own name – e.g., WWM Financial, Alliance Investment Planning Group, Jack & Jill’s Investment Group, Humpty Dumpty’s Planning LLC.

In terms of the financial professionals themselves, there are different types of professionals depending on which licenses have been obtained and services are being offered, along with the commensurate regulations that apply to each type. For example, a registered representative, which is more commonly called a securities broker or stockbroker, has passed FINRA exams such as the Series 7 exam and is licensed to sell different securities and products such as stocks, bonds, options, and mutual funds. Registered rep’s are regulated by FINRA, the self-regulatory organization (SRO) authorized and overseen by the Securities and Exchange Commission, or SEC, and are transactions-based providers held to a suitability standard which requires brokers to only recommend investment products suitable for a client’s circumstances. Registered rep’s generally follow a more sales-oriented model, charging commissions for the purchase and sale of securities similar to those in a wirehouse.

The other primary type of financial professional is an investment adviser representative, more commonly referred to as a financial advisor or investment advisor. Financial/investment advisors must pass the Series 65 exam (or a combination of the Series 7 and 66 or possess a professional designation such as the CFP® or ChFC®) and are regulated by their state or the SEC, depending on how many assets they manage. Financial/investment advisors counsel clients on investing and financial issues and are held to a higher legal standard (e.g., than suitability) called a fiduciary standard or duty. Most financial/investment advisors do not charge sales commissions for investment products, but rather an asset-based fee for their ongoing investment advice typically expressed as a percentage of the assets under management. The fiduciary duty requires advisors to place their client’s interests above their own, and to eliminate conflicts of interest and properly disclose to their clients all those that are not. Suitability is essentially a subset of the fiduciary duty.

Here’s the really tricky part. Stockbrokers and investment advisors can be found in either wirehouses or broker-dealers or RIAs. In fact, some financial professionals are dual-registered, meaning they can offer financial products on a transactional commission basis as a registered rep, but can also provide ongoing financial or investment advice on a fee basis. So for example, a dual-registered broker/advisor affiliated with an independent broker/dealer could be managing a taxable account for a client set up as a commission-based brokerage account, meaning the broker is held to the suitability standard for this transactional account. That same client may have another account with the same financial professional set up as a fee-based account, which would legally be held to the higher fiduciary standard. Confused? Yes, I understand, it isn’t as easy as it should be to figure out what type of professional you’re working with, how they’re compensated, and what legal standard they’re held to. My advice? Ask, and do your research before hiring someone. The SEC provides a site for consumers to help with that research: www.adviserinfo.sec.gov.

To make matters even more confusing, there are many credentials available and in use inside the financial services industry by brokers and advisors, some very meaningful and others less so. Perhaps the most respected and significant designations are the CERTIFIED FINANCIAL PLANNERTM, or CFP®, the Chartered Financial Consultant, or ChFC, and the Chartered Financial Analyst, or CFA.1 These designations all require college-level coursework, passage of examinations, extensive time commitments, and sometimes an experience and ethics criteria as well. The CFP® and ChFC credentials require knowledge and testing on a broad array of financial topics, including taxes, insurance, investments, employee benefits, retirement planning, educational savings plans, and estate planning. If you want to work with someone who has invested time and effort into their career and has a broad financial knowledge base, it might be worth considering a CFP® or ChFC professional. CFA’s, on the other hand, are more specialized in investments and specifically investment analysis. Many mutual fund or hedge fund managers are CFA’s, generally cutting their teeth as an investment analyst initially before eventually becoming the fund manager. Which is better? It depends on what you’re looking for. If you only need help evaluating investment products, a CFA may be a reasonable choice. But if you’re looking for a financial partner or consultant to help you navigate life’s myriad financial challenges, the CFP® or ChFC designations may be more useful in identifying prospective advisors for you to work with.

It’s important to realize that the credentials are distinct from the type of financial professional you’re dealing with. A few registered rep’s, for example, have obtained a CFP® designation. And many investment advisors do not have CFP®’s or ChFC’s or CFA’s. But more commonly, CFP® and ChFC designations are associated with financial/investment advisors who do business as fee-based advisors/planners acting in a fiduciary capacity. And CFA’s are more common in the fund management world (i.e., mutual fund, hedge fund, endowments) than in the client-facing world (i.e., stockbrokers, advisors). This isn’t a hard and fast rule, but rather an observation on where the industry is today, and where it appears to be headed. Each issuer of these designations provides an online search to determine if your advisor’s designation is in good standing.

To wrap this up, I wanted to quickly cover a few terms that sometimes confuse consumers unfamiliar with the financial services industry. When brokers/advisors refer to “equities”, they’re generally talking about stocks. Whereas when they refer to “fixed income”, they’re generally talking about bonds. Which is unfortunate because bonds do not have fixed returns like bank CD’s, unless the bonds are held to maturity. Investors who sell their bonds in the secondary market before maturity may get more, or less, than what the bond was originally sold for. ETF’s are exchange-traded funds, a security similar to a mutual fund but actually traded on the stock exchanges. Most ETF’s are index-trackers, but not all. ADR’s are American Depository Receipts, which is how American investors can purchase foreign stocks listed on foreign exchanges, since each ADR represents a specific number of shares of a foreign-listed stock. Finally, “robo-advisors” aren’t advisors at all, but rather automated investing services using computer algorithms to build and manage an investment portfolio.

I hope this short article helps decrypt some of the confusing language used by the investment industry.

1 “Four Best Financial Certifications” by Ellen Chang, U.S. News & World Report, August 11, 2020

 

Scott McClatchey is a wealth advisor and CERTIFIED FINANCIAL PLANNERTM with WWM Financial, an SEC registered Investment Advisor in Carlsbad, CA. He can be contacted by phone on 760-692-5190 or by email at scott@wwmfinancial.com .

 

 

 

Disclaimer:

This commentary on this website reflects the personal opinions, viewpoints and analyses of the WWM Financial employees providing such comments, and should not be regarded as a description of advisory services provided by WWM Financial or performance returns of any WWM Financial Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. WWM Financial manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

Top 20 Financial Planning Hacks,  Tips 16 20

Top 20 Financial Planning Hacks, Tips 16 20

Click on the image above to view tips 11-20 of this webinar series.

Free Financial Planning Webinar Series

  • Insider tips from a seasoned CERTIFIED FINANCIAL PLANNERTM professional
  • Actionable information and guidelines to get/keep your finances on track
  • Easy to understand explanations with evidence-based supporting materials

Have you ever wondered whether you’re on the right track with your finances? Is the finance industry jargon too difficult to understand and too expensive to access? If you answered yes to either/both of these, this 4-part webinar series is the opportunity you’ve been waiting for. Based on practical experience with real clients, these common-sense tips may empower you to understand what you should be doing while improving your current and future financial status.

Scott McClatchey is a CERTIFIED FINANCIAL PLANNER™, CFP® with WWM Financial in Carlsbad, California. Scott can be reached at 760-692-5190 or scott@wwmfinancial.com.

WWM Financial, an SEC-registered Investment Adviser. Advisory services offered where client advisory agreements are in place and WWM Financial is properly licensed. Past performance may not be indicative of future results. No investor should assume future performance of any specific investment will be profitable. This communication is for informational purposes only and not intended to be investment advice. Please seek professional financial advice before investing.

Top 20 Financial Planning Hacks, Tips 11-15

Top 20 Financial Planning Hacks, Tips 11-15

Click on the image above to view tips 11-15 of this webinar series.

Free Financial Planning Webinar Series

  • Insider tips from a seasoned CERTIFIED FINANCIAL PLANNERTM professional
  • Actionable information and guidelines to get/keep your finances on track
  • Easy to understand explanations with evidence-based supporting materials

Have you ever wondered whether you’re on the right track with your finances? Is the finance industry jargon too difficult to understand and too expensive to access? If you answered yes to either/both of these, this 4-part webinar series is the opportunity you’ve been waiting for. Based on practical experience with real clients, these common-sense tips may empower you to understand what you should be doing while improving your current and future financial status.

Scott McClatchey is a CERTIFIED FINANCIAL PLANNER™, CFP® with WWM Financial in Carlsbad, California. Scott can be reached at 760-692-5190 or scott@wwmfinancial.com.

WWM Financial, an SEC-registered Investment Adviser. Advisory services offered where client advisory agreements are in place and WWM Financial is properly licensed. Past performance may not be indicative of future results. No investor should assume future performance of any specific investment will be profitable. This communication is for informational purposes only and not intended to be investment advice. Please seek professional financial advice before investing.

Top 20 Financial Planning Hacks, Tips 6-10

Top 20 Financial Planning Hacks, Tips 6-10

Click on the image above to view tips 6-10 of this webinar series.

Free Financial Planning Webinar Series

  • Insider tips from a seasoned CERTIFIED FINANCIAL PLANNERTM professional
  • Actionable information and guidelines to get/keep your finances on track
  • Easy to understand explanations with evidence-based supporting materials

Have you ever wondered whether you’re on the right track with your finances? Is the finance industry jargon too difficult to understand and too expensive to access? If you answered yes to either/both of these, this 4-part webinar series is the opportunity you’ve been waiting for. Based on practical experience with real clients, these common-sense tips may empower you to understand what you should be doing while improving your current and future financial status.

Scott McClatchey is a CERTIFIED FINANCIAL PLANNER™, CFP® with WWM Financial in Carlsbad, California. Scott can be reached at 760-692-5190 or scott@wwmfinancial.com.

WWM Financial, an SEC-registered Investment Adviser. Advisory services offered where client advisory agreements are in place and WWM Financial is properly licensed. Past performance may not be indicative of future results. No investor should assume future performance of any specific investment will be profitable. This communication is for informational purposes only and not intended to be investment advice. Please seek professional financial advice before investing.