- 2 Where are your priorities?
- 3 Understanding the big picture: What financial planning is (and isn’t)
- 4 Six different areas of financial planning
- 5 Every plan needs a planner: A final takeaway
Where are your priorities?
In a 2019 survey conducted by MyBankTracker, respondents in the U.S. were asked a simple question as it related to financial planning: How much time do you spend planning your vacations vs. your finances?
The results were telling.
- Around 20% of respondents reported that they spent more time planning their vacations over planning their finances.
- Over 11% of respondents reported that they spent more than 5 times planning their vacations over planning their finances.
- Just 46% of respondents said that they spent more time planning their finances over planning for their vacations.
By posing a relatable dilemma, the study may have gotten to the heart of how we value financial preparedness and order our financial priorities. Now, with the far-reaching economic impact of the COVID pandemic on individuals, families and businesses, the question hits even closer.
A recent Pew Research study found that only 23% of lower income earners said they had sufficient savings to cover three months’ worth of expenses, just 48% of middle-income earners and 75% for high-income earners. Whatever level your income or financial status, the necessity of financial planning remains clear.
Planning your vacations or planning your finances — how would you respond?
Understanding the big picture: What financial planning is (and isn’t)
Eric Garcia, a financial consultant for Popular Private Client and Registered Representative, Infinex Investments, Inc., encourages clients to approach financial planning for its long-term value over short-term payoff. He’s also quick to emphasize that “[having] a plan and taking it seriously is very important.” This may be the first important step as you begin to confront financial challenges and navigate the unknowns en route towards sustaining longevity.
So as a long-range process, what does financial planning actually help you achieve?
1. Financial planning helps you clarify goals.
Developing a financial plan allows you to take inventory of your current status, clarify goals and make the right decisions to help you fulfill those goals. For example, are you a business owner hoping to transition your ownership and ensure your business’s future success? Or, is financial stability in retirement the goal but you’re uncertain whether your savings will help you get there?
Questions like these become clearer when you engage in the financial planning process because fundamentally, financial planning is goals-based planning.
2. Financial planning helps you differentiate priorities.
Developing a financial plan reveals your different priorities and the strategies you need to balance those priorities. In this way, the financial planning process gives you an integrative view into how certain financial goals can affect others.
Are you looking to set aside educational savings for your children through a 529 plan? If so, how might that impact other competing investment objectives , such as plans to purchase or expand your real estate?
The financial planning process will crystallize short- and long-term goals and help you better allocate your time and investments because financial planning is strategic, priorities-based planning.
3. Financial planning helps you adapt to the unexpected.
Developing a financial plan gives you the confidence to adapt to unforeseen circumstances and yet still stay the course.
At the onset of the pandemic, the market experienced extreme volatility, with the S&P 500 index falling 34%. Rather than advocate for knee-jerk, “short-sighted transactions,” Joseph Culotta, Director of Wealth Management at Popular Bank and Registered Representative, Infinex Investments, Inc., recommends that clients instead conduct more frequent reviews of their financial plan and adjust investment goals accordingly to mitigate risk.
The same principle applies in the context of personal events or challenges, such as an abrupt loss of business income or unexpected healthcare costs. Reviewing and adjusting your plan will help you remain flexible in the short term and assured for the long term because financial planning is adaptive planning.
Six different areas of financial planning
The financial planning process can generally include up to six areas of focus. Financial consultants who specialize in individual areas of financial planning can help you identify strategies and structure the right mix of services and solutions for a balanced approach.
1. Retirement planning
The retirement planning process helps you assess retirement goals and design a savings and investments portfolio based on your time horizon and risk tolerance.
2. Investment planning
The investment planning process lets you take inventory of your current financial profile, weigh the benefits and risks of short-term versus long-term gains and hone in on the right investments to make and monitor over time.
3. Tax planning
The tax planning process reminds you to evaluate your investment strategies in light of their short- or long-term tax advantages and clarifies how much and to which accounts you should be contributing for maximum tax savings.
4. Insurance Planning
The insurance planning process enables you to find the right types of insurance you might need to protect yourself financially against unforeseen circumstances, including the loss of life, good health, employment or property.
5. Estate planning
The estate planning process encourages you to consider how you might optimally transfer your wealth to individuals, organization or causes by using a will or creating customized trusts.
6. Education planning
The education planning process empowers you to frame savings goals, timelines and tax-advantaged plans (e.g., 529 plans) to grow your funds and meet future education-related expenses.
Every plan needs a planner: A final takeaway
In early 2020, the Federal Reserve published a Report on the Economic Well-Being of U.S. Households based on findings from a year-long survey about financial circumstances and the decision-making process in American households.
Here’s one notable observation from the report as it relates to financial planning:
Non-retirees with self-directed retirement savings varied in their comfort with making investment decisions for their accounts. Nearly 6 in 10 non-retirees with self-directed retirement savings expressed low levels of comfort in making investment decisions with their accounts.
What this speaks to is the general discomfort that many experience when making decisions related to financial planning. So while planning begins with you, it can benefit from the input and support of others.
That’s where planners come in.
Financial planners are problem solvers, big-picture thinkers and strategic managers. Our team of private bankers, financial consultants and advisors will learn about your concerns and circumstances, clarify your goals, recommend the right options to meet those goals and most importantly, ensure that you stay the course.
The only way to get more comfortable thinking about your financial future is to begin planning for one.
It’s never too late to start.