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What Is the financial planning process

What Is the financial planning process

Sep 6, 2023

Discover how to become financially independent without giving up lattes or living on bread and water.

I invite you to check out this short video covering the financial planning process. In this video you’ll discover:

  • Setting short- & long-term goals.
  • Making financial decisions.
  • Financial considerations related to age.
  • The 7 steps of the financial planning process.
  • Who a financial plan is for.

So, if you’re serious about taking control of your finances and you don’t want to run out of money in retirement then you should watch this video.

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WWM Financial is an SEC Registered Investment Advisor

The opinions expressed in this content are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

What Is The Most Important Part Of A Financial Plan?

What Is The Most Important Part Of A Financial Plan?

Aug 22, 2023

This quick video reveals the most important part of your financial plan. So, you can get control of your money and create a life you love.

If you’re wondering if you’re saving enough or if you’re in the right investments so that you can retire comfortably and remain comfortably retired, book a free call by clicking on the button below.

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Recession? What Recession?

Recession? What Recession?

Aug 17, 2023

With apologies to popular 1970’s British rock band Supertramp, my title paraphrases their classic November 1975 album release entitled “Crisis? What Crisis?”(1) That’s because nearly every person on this planet, all 8 billion of us, has either been predicting or expecting a recession for the good part of a year now.  But it hasn’t happened. My objective in writing this article is to explain why a recession was expected, what happened to stave it off, and whether its onset has just been postponed or has been completely taken off the table.

Coming into 2022, inflation was rising rapidly as US consumers were still spending big money on physical goods and home improvements while also starting to spend generously on experiences, including travel, eating out, cruises, conferences, concerts, and bucket-list items.  Some refer to these experiences as “revenge travel” because pandemic restrictions and concerns had largely faded away and we all decided it was time to do something F-U-N.  But by June 2022, CPI inflation had risen alarmingly to 9.1% on an annualized basis, the highest increase in prices in 40 years.(2)  This galvanized the Federal Reserve Bank, responsible for implementing monetary policy for the US economy, to begin raising interest rates to stem inflation and try to bring back “price stability.”  And raise rates they did!  As of July 2023, “the Fed” has hiked its Federal Funds rate 11 times from essentially zero in early 2022 to 5.5% by the end of July.  This has been the fastest rate hiking cycle in modern history!(3)

Largely due to rapidly rising rates, economists and market forecasters expected consumers to reduce spending, corporations to pull back, institute layoffs, and become less profitable, housing prices to fall, and economic activity to dramatically slow down (i.e., GDP growth to slow and possibly stall or fall).  But most of that didn’t happen.  Why?  Primarily because consumers were flush with “extra cash” due to Government stimulus and were forced to reduce spending, at least early in the pandemic, as lockdowns and restrictions limited certain activities.  And the labor market has remained tight, meaning “good” (for workers, anyway, with unemployment still only 3.6%).(4)

According to data from the US’ largest bank JP Morgan Chase, consumer bank accounts were about 60% higher in mid-2020 through mid-2021 than in 2019, before the pandemic hit US shores.(5)  With consumers employed and able to continue spending, corporations raised their prices to maintain or even increase earnings, which economists call “pricing power.”  Despite rising interest payments along with higher input and labor costs, many companies have maintained or improved profitability over the past 3 years.  And as above-trend “goods” demand waned last year, demand for “services” picked up as “revenge travel” accelerated, offsetting a decline in manufacturing.  Consumers just kept on spending!

Residential housing prices did fall in most of the US, however, due to mortgage rates essentially doubling in a very short time.  But with a limited housing inventory for sale and homes taking on increasing importance (e.g., due to popularity of work-from-home trends), many residential housing markets have now stabilized or even seen higher prices than before the pandemic – despite 7% mortgage rates.(6)

Where do we go from here?  It’s always hard to predict macroeconomic factors like recessions, inflation, interest rates, housing prices, and unemployment – and that’s when we’re not still dealing with the after-effects of a global pandemic.  That said, what we can say is the US economy is slowing down.  Labor markets are still tight, but loosening just a bit, and although inflation is coming down, ‘core’ inflation is falling much slower than the Fed wants to see.  (‘Core’ inflation strips out the most volatile components of CPI, including energy and food costs, to get a better perspective on US inflation trends.) 

In terms of consumer spending, there may be trouble ahead as consumers have now “burned through” all but 11% of the “extra cash” in their bank accounts, on average.(5)  In a few months, not only will consumers be back to where they were in 2019, bank account wise, but for the first time in 3 ½ years many will have to start paying off their student loans again, reducing discretionary spending.  To exacerbate things further, credit conditions are tightening, partially due to recent bank failures, and economic growth has slowed down significantly across the globe.

Have we “dodged a bullet” in terms of avoiding the long-predicted recession, with the Fed engineering a so-called “soft landing” of our economy?  Well, to invoke another notable British rock band album title, this time I’ll borrow from Oasis’ critically acclaimed August 1994 release entitled “Definitely Maybe.”(7)  Hopefully that illustrates how cloudy my crystal ball is right now!

(1) Crisis? What Crisis?, https://www.allmusic.com/album/crisis-what-crisis–mw0000195960
(2) US Bureau of Labor Statistics, Consumer prices up 9.1% over the year ended June 2022, largest increase in 40 years, July 18, 2022
(3) Federal Reserve Board of Governors website, FOMC’s target federal funds rate or range, change (basis points) and level, www.federalreserve.gov/monetarypolicy/openmarket.htm
(4) Nerdwallet, Current Unemployment Rate and Other Jobs Report Findings, www.nerdwallet.com
(5) JP Morgan Chase Institute, article in The Washington Post, Americans are still better off, with more in the bank than before pandemic, by Abha Bhattarai, July 17, 2023
(6) Reuters, US home prices in May make gains again from the prior month, by Safiyah Riddle, July 25, 2023
(7) Definitely Maybe, https://oasisinet.com/music/definitely-maybe/

More Articles Written by Scott

Recession? What Recession?

Recession? What Recession?

My objective in writing this article is to explain why a recession was expected, what happened to stave it off, and whether its onset has just been postponed or has been completely taken off the table.

read more

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

WWM Financial is an SEC Registered Investment Advisor

The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

What Is A Financial Plan Used For?

What Is A Financial Plan Used For?

May 3, 2023

What Is A Financial Plan Used For?

We all know we should have savings.

But when it comes down to actually doing it, Americans tend to fall into 2 camps: planners and non-planners.

Planners usually know what they’re saving for, how much they need to sock away, and how long it will take them to realize their goals.

Non-planners, on the other hand, save when they can, maybe by making small contributions to a workplace retirement plan in the hope that everything will work out in the long run.

If the second type sounds more like you, you’re not alone: A quarter of American taxpayers (23 percent) don’t have a financial plan, according to a 2021 AICPA Survey.

With our busy lifestyles, planning for anything more than a few months or years in advance can seem daunting. It’s natural to wonder: What is a financial plan used for?

Here are a few purposes of a financial plan:

1. Boost Your Savings

A financial plan gives you a good understanding and insight into your income and expenses.

When you know where your money is going, you’ll be able to frame a concrete plan that will let you save more.

Cutting down your expenses will automatically boost your savings in the long run.

2. Improve Your Standard of Living

Investing for the future without compromising on the standard of living is every investor’s ultimate goal.

It’s a common misconception that you have to lower your standard of living if you’re trying to make better financial decisions.

With a good financial plan under your sleeves, you’ll be able to pay monthly bills and other expenses while living in relative comfort.

3. Helping You Prepare for Emergencies 

Having a financial plan is a good way to be prepared for any unforeseen situation.

An emergency fund will help you to procure funds in case of a job loss or family crisis.

For most Americans, the goal is to have 3-6 months’ worth of daily living expenses stashed away in an accessible account. This way, you’ll not have to worry about dipping into your savings when an unexpected expense comes knocking or when your financial situation radically changes overnight.

The emergency corpus will help you handle unforeseen expenses on time and with much less anxiety.

4. Creating an Investment Portfolio

A financial plan can help you understand your goals and objectives, how much time you have to accomplish them, and how comfortable you are with risk.

With a comprehensive view, it’ll be easier to figure out how to reach every individual goal. These goals can include investing, which is the process of buying assets that grow in value over time and provide returns.

Whether you choose your investments yourself or use a wealth manager, with your financial plan as a guide, you’ll be able to evaluate new investments and make informed investing decisions.

Instead of jumping in impulsively with no sense of direction and just praying for the best, you will pick the right investments based on your income capacity, risk profile, and long-term goals.

5. Risk Management

If you can no longer work, you’ll have difficulty paying your mortgage.

If you die prematurely, you’ll no longer be able to provide for your family.

A financial plan analyzes the risk of such events and the impact they could have on you or your loved ones.

Then it offers viable solutions (such as insurance and estate planning) that ensure that you and your family members can maintain the same standard of living with reduced or no income.

6. Managing Debt Effectively

We take loans to finance things such as cars, homes, and college education.

Without proper planning, these liabilities might turn into debt traps and seriously damage your financial health.

Thus, a financial plan is essential to ensuring you don’t end up in a financial crisis.

Eliminating high-interest debt will allow you to focus on other important financial targets.

7. Building a Roadmap to Retirement

Social Security is unlikely to provide you with enough income to live on after you stop working.

With a financial plan, you can calculate your expected income from all sources, then look at your current and projected expenses to see whether you’ll have enough money to retire comfortably.

A financial plan will tell you how much you need to save for a carefree, relaxed retirement.

More and more younger people are looking to join the FIRE movement. If you’re looking to join the bandwagon, a financial plan will help you reduce your expenses, increase your savings and boost your investments so you can start enjoying post-retirement life in your 30s or 40s instead of 60s or 70s.

Conclusion

A financial plan is basically a description of your goals and the tools and strategies you need to achieve them.

Writing a financial plan may sound like another chore, but if you want to be successful, it’s the foundation on which to recognize, build, and accomplish your goals.

Wherever you are in your financial journey, having a written financial plan can improve confidence and result in more constructive financial behavior.

How to Get Started

Households that work with a financial advisor who takes a holistic look at their needs are more likely to make better overall financial decisions than those without.

We can help you cut through the clutter by having a thorough understanding of your situation and creating a customized financial plan that works for your unique goals.

Schedule Free Consultation

WWM Financial is an SEC Registered Investment Advisor

The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

What’s Included In a Financial Plan

What’s Included In a Financial Plan

Feb 23, 2023

What’s Included In A Financial Plan?

A well-written financial plan can mean the difference in your financial success. With it, you’ll be less likely to make poor financial decisions.

Despite the importance of a personal financial plan, many people don’t know what to include in their plans.
Financial planning is highly personal. This means that while plans feature similar ingredients, the quantities, when they’re added, and how they blend will vary based on your unique situation.

So, to give you a clear picture of what goes into a financial plan, let’s look at some of the most common elements:

1. Net Worth Statement

The first thing to include in your financial plan is an overview of what your financial situation looks like.
You can do this by performing an asset evaluation to determine your net worth. Start by taking an inventory of all of your assets (investment properties, bank accounts, valuable personal properties, etc.). You’ll need to determine the market value of all your assets.
After valuing all of your assets, you’ll need to take an inventory of all your liabilities (debts).
You can then calculate your net worth by deducting your liabilities from your assets’ value.
If your liabilities outweigh your assets, don’t fret. This is common when you’re just starting out, especially if you have student loans and a mortgage.

2. Financial Goals

Your financial goals are the next item to include in your financial plan.
Think about goals such as saving a down payment for a home, buying a car, paying off your student loans, kids’ college savings, retiring early, and other stuff that you’d like to accomplish.
These goals are the driving force of your financial plan. They will motivate you to follow through with your financial plan.
Decide how much money you’ll need to meet each of these goals. When your financial goals are crystal clear and have a number attached to them, your plan becomes more effective.

3. An Investment Strategy to Get You There

Once you have an idea of your financial goals and how much you’ll need to set aside to achieve them, your next step will be to create an investment strategy to help you meet each goal.
Design your investment strategy based on your personal goals, risk tolerance, and time horizon.
If you have a lengthy time to save, it might make sense to be more aggressive with your investment choices. If you’re approaching retirement, you might choose to be conservative in your selections.
After deciding the strategy you’ll take, jot down a personal investment policy statement to guide you when choosing your investments.
You can then select your investments while making sure to diversify as you build a portfolio.

4. Budgeting and Savings Plan

You cannot build wealth without having a handle on your expenses and knowing what you can save.
If you haven’t already, create a personal budget to track and categorize your monthly income and expenses. Adjust your spending as necessary and plan how to tackle high-interest debt, such as credit cards. Dedicate whatever’s left over to build your emergency fund then start working toward other goals.
A good financial plan should also have a savings plan. This is a plan for how much money you need to save from your income every paycheck or month to realize your goals.
Setting aside more money while you’re young with fairly low expenses is a smart choice. If you’re older, you’ll want to figure out how much you’ll need to set aside to retire comfortably.
A good rule of thumb is to save at least 20 percent of your monthly income.

5. Debt Management Plan

When used wisely, debt can be an excellent financial tool. But it can also be a drag.
Whether you have credit card debt, student loans, or other “toxic” high-interest debt, a debt management plan can help you to complete your debt payments quickly, allowing you to retire without continuing payments.
If you’re unsure where to start, a financial advisor can help educate you about debt and the various strategies you can use to manage or pay down debt.

6. Emergency Fund

While it’s impossible to plan for all risks, having an emergency fund to help you in case of an injury, illness, job loss, or another expensive event can help you stay within your goals and objectives.
Putting cash away for emergency expenses is the bedrock of any financial plan. Doing this can help you avoid tapping your savings account to make ends meet.
You can start small — 500 bucks is enough to cover small repairs and emergencies so that an unexpected expense doesn’t run up credit card debt.
Your next goal could be a thousand bucks, then one month’s daily living expenses. Continue increasing your target gradually until you have 3-6 months’ worth of basic living expenses stashed in a separate savings account.

7. Retirement Planning

A retirement plan lets you save money for the golden years of your life and ensures you can meet your needs comfortably.
By using different financial options that reinforce each other, you’ll be able to create a dependable income stream in retirement. An old rule of thumb says you will need 70-80 percent of your current income in retirement.
A financial plan prepares you for key risks — such as inflation, taxes, market volatility, and the probability that you may live longer than expected.

8. Tax Planning

Creating an income and property tax plan is critical for your overall financial plan as these taxes can undermine long-term savings.
Taxes are inevitable, but you should not pay any more than necessary.
Review your tax plan annually since tax laws and regulations change every year. Take advantage of opportunities like harvesting tax losses, bunching charitable donations to offset excess income, and using Roth IRA conversions strategically.
Hire a tax professional to decipher the deductions that you may be eligible to take. This way, you’ll be able to reduce the amount that you have to pay to Uncle Sam and keep more of your money.

9. Estate Planning

This is something that a lot of people put off because they think that they have plenty of time to do it later or just don’t want to think about death.
It’s, however, important to understand that the worst can happen at any time. It doesn’t matter whether you have significant wealth or a small nest egg; everyone over 18 should at least have durable health care and financial powers of attorney in place.
If you become incapacitated and do not have a plan in place, for example, your loved ones may have trouble making vital medical decisions or accessing your bank accounts to pay your hospital bills for you.
Estate planning should also include plans for how your wealth will be distributed to your loved ones or special causes you care about after your death.
Comprehensive estate planning may include a handful of documents, such as wills, living wills, trusts, and advance directives.

10. Insurance Assessment

An insurance plan is another key component of a personal financial plan.
As you work toward building your wealth, you should also think about how to protect it.
The insurance needs of each individual will vary. Take time to evaluate your risks and determine how much insurance you need to offset each.
Your insurance needs might be affected by age, health, profession, assets, economic status, and family status.
At a minimum, include plans for your auto insurance, health insurance, disability insurance, homeowner’s/renter’s insurance, and life insurance.

Conclusion

Creating a financial plan will take some work, but the outcome can be life-changing.
Including all the elements mentioned above can lead you to greater financial health and a better future.
It goes without saying that your personal financial plan should not be static. You should treat it as a living document and review it as your life changes and your goals shift.

Contact Us

At WWM Financial, we take the time to assess your current financial situation, gain an understanding of your short- and long-term needs and goals, and put together a realistic financial plan to help you achieve everything your heart desires.

For help with your financial plan or to learn more about the services we offer, get in touch with a member of our team today. 

Schedule Free Consultation

WWM Financial is an SEC Registered Investment Advisor

The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Investing for retirement Using IRA, Roth and 401(k) Plans

Investing for retirement Using IRA, Roth and 401(k) Plans

Dec 13, 2022

Investing for retirement Using IRA, Roth and 401(k) Plans

For the past 20 years, most individuals have saved and invested for retirement on their own because company pension plans are largely a thing of the past.  Living on Social Security alone during retirement isn’t appealing for most of us, since the maximum benefit is around $40k/year for 2022.1 But how much and where should we invest for retirement?  The short answer: Most individuals should be saving and investing about 15% of their income into a retirement savings/investment plan such as an IRA or 401(k) or 403(b), or some combination.2

Companies typically offer some form of retirement savings plan with employee contributions coming directly out of their paychecks.  These are many times 401(k) or 403(b) plans but could also be 457 or deferred compensation plans, depending on the employer and type of business.  Many but not all companies will match a specific percentage of their employees’ contributions, which if you’re lucky enough to have this option, you should be taking advantage of it because this is “free money”.  Investment options for these types of retirement savings plans are generally selected by the employees from a pre-defined list of 15 to 50 mutual fund or similar options.  The IRS does set annual contribution limits for the employee portion, which for 2022 is $20.5k for employees under age 50 and $27k for employees aged 50 or older.3

Many but not all companies will match a specific percentage of their employees’ contributions, which if you’re lucky enough to have this option, you should be taking advantage of it because this is “free money”

If you work for a small company, or for yourself as an independent contractor, you may not have a company-sponsored 401(k) or 403(b) or 457 plan available.  In this case, you could set up a Simplified Employee Pension, or SEP, plan if you own your own business or work for yourself as a consultant or entrepreneur.  Small companies sometimes do offer a SIMPLE plan, which operates much like a 401(k) but has lower annual contribution limits and requires employers to match at a specific safe-harbor level.  But if none of those is available, employees can contribute to their own Individual Retirement Account, or IRA, set up directly with a brokerage firm or bank.  Annual IRA contribution limits are even lower than the others mentioned, and sometimes higher income individuals may be prohibited from making contributions altogether (e.g., Roth IRA) or may lose the tax deduction (e.g., traditional IRA).  Investment options in IRAs are virtually unlimited, with most any stock, bond, ETF, or mutual fund available.

“

when it comes to saving for retirement, sooner is always better than later

But later, in retirement, all monies distributed from these plans are considered taxable income.  The tax benefit comes on the front end when contributions are made.  Once a retiree turns 72 years old, Required Minimum Distributions (RMD’s) apply, necessitating withdrawals be taken according to an IRS table.

In contrast, Roth IRAs do not provide a front-end tax benefit, meaning employee contributions to Roth IRAs are not deductible.  But unlike traditional IRAs, Roth IRA distributions come out tax-free during retirement if the Roth account has been in place for 5 or more years and the employee is 59 ½ years old or older.  Roth IRA tax benefits are accrued on the back end, meaning during retirement when distributions are taken to supplement Social Security income.  Today many employer-sponsored retirement plans also allow employee 401(k) contributions to be designated as Roth.  This is an excellent way to build up a large retirement account which may be available tax-free in retirement.  And because monies inside a Roth account have already been taxed, no RMD’s are generally required.

Which is better – Traditional or Roth?  Both, actually!  Using either or both retirement savings/investing vehicle is better than not saving/investing at all, and when it comes to saving for retirement, sooner is always better than later, and higher contributions are always better than lower.  If I were advising a 25-year-old employee just starting out and making $50k per year, I’d suggest building up the Roth 401(k) and/or Roth IRA as much as possible since a tax deduction now isn’t as critical at this juncture.  But if my client was 58 years old and making $650k annually, I’d suggest they use all the tax deductions they can get right now, because they’re in a very high tax bracket already.  This means using a traditional 401(k) or IRA for this client would be my suggestion.

1 Social Security website https://faq.ssa.gov/en-US/
2 What Percentage of your Salary Should go Toward Retirement?, Investopedia, by Tim Parker, March 30, 2022
3 401(k) Contribution Limits Rising Next Year, by Jackie Stewart and Elaine Silvestrini, Kiplinger, September 23, 2022

More Articles Written By Scott

Recession? What Recession?

Recession? What Recession?

My objective in writing this article is to explain why a recession was expected, what happened to stave it off, and whether its onset has just been postponed or has been completely taken off the table.

read more

Scott MCClatchey, CFP®

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

WWM Financial is an SEC Registered Investment Advisor.

The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.