Control What Is Within YOUR Control
December 15th, 2019
There is much more to financial planning than standing by watching the market go up and down every day. In fact, if we are keeping our financial house in order, then the market does not seem so scary.
Research tells us that over time, if we properly allocate our investments to align with our goals and timelines, keep our fees low and stick with our strategy, the market is still a good place to put our money. It may be a not-so-thrilling roller coaster ride for the faint of heart these days. But even the faint will not fare well over time by resorting to cash or hiding it under the mattress if they want to keep pace with inflation.
Financial planning is a process – an ever-changing one. We can’t “set it and forget it”. It is a balancing act. There are competing financial demands, needs, and wants that must be addressed, strategically worked into a plan, and then monitored and reevaluated periodically.
This is why financial planning is necessary and never boring. It is essential for every household to take care of the family, protect against the unexpected, and prepare for the future.
Think of a financial plan like a house. A lot of preparation and hard work go into building a house. The foundation is critical; the framework and roof make the house sturdy and prevent leaks; and the details make it enjoyable. However, even after those last details are complete, you don’t move in and never concern yourself with your house again. Life happens – the family grows, needs change, repairs must be made. Life is organic – rarely does anything stay the same and not require an update or revision.
Let’s compare the foundation to cash flow, an emergency fund, and staying or getting out of debt. These are fundamentals that everyone needs to get in place. It is impossible to plan if you do not know how much money is coming in and going out. Whether you are single or a family of eight, it is good to begin with an accurate picture of income and expenses, as well as a balance sheet illustrating what you own and what you owe. An emergency fund would then consist of at least 3-6 months of your expenses, including fixed costs as well as variable ones that happen monthly. Establishing this emergency cushion while digging out of debt helps build the habit of saving and therefore preventing future continued debt. We may not be able change the direction of the market, but we can change the direction we are headed by fine tuning the fundamentals: wisely managing debt, investing prudently, and freeing up cash flow to accomplish our savings objectives.
Secondly, the framework and roof include insurance planning, estate planning, savings for goals, and retirement and education funding. You’ll need insurance to protect everything that has the potential for financial harm: your car, home, health and life. Having estate planning documents in place is equally important due to their huge impact on how health and financial decisions are made, guardianship, wealth preservation, beneficiaries, and end of life directives.
As fee-only financial planners, we do not sell insurance or draft estate documents, but we do look for holes in risk management and your estate plan to give advice that fits a comprehensive plan for your and/or your family’s needs.
Another part of the framework, savings, can be seen as different buckets assigned to short, medium and long-term goals. How you invest these buckets of money depends on the time horizon for your unique goals. How to allocate between them and how much risk to assume helps determine the appropriate investment strategy. If you have decades before your newborn goes to college or before you retire, you can take on more risk. Part of the financial planning process is balancing your goals so that one goal, such as college for children, does not highjack another goal, like your retirement. Then reviewing your accounts each year to see if they still match your goals – remembering that life is organic, and we must adapt.
Lastly, there are dreams and legacy planning for the finishing touches. The relationship between financial planner and client must be one of trust, transparency, and clarity. Only then can there be a cooperative effort to move past covering the necessities to what truly matters to you. Do you want to start a new business that you’ve been putting off? How about your desire to give to needs or purposes dear to your heart? Is there a place where you want to visit or invest a part of your life? How about the legacy you want to leave for family? Those finishing touches make your house a home; and enjoying your life is the fruit of your labor.
Imagine how it would feel to have the peace of mind of a plan in place, and options and choices available when life takes a detour.
Yes, the market may be turbulent, but there is plenty of financial planning to do while we ride the peaks and valleys. And with progress in other areas, it just may make the ride a little less frenzied.
When you work with Shore Financial Planning, the financial advice we provide is ALWAYS in your best interest. As a Certified Financial Advisor, NAPFA Professional, and Fiduciary Advisor, Joseph Vecchio offers unbiased and conflict-free financial advice & retirement planning services.
Joseph Vecchio CPA, CFP®, MBA is the firm’s President and has dedicated his professional life to the finance and accounting professions.
Joe believes that people are being exploited by financial salespeople who are merely motivated by quotas, product sales and commission-based income! Shore Financial Planning was founded to provide peace of mind through conflict-free, value-added advice.