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3 Financial Planning Steps

September 20, 2023 Tags: , , admin

Organization, efficiency and discipline can be considered as three primary steps of financial planning. Organization is knowing where your money comes and goes. An efficient portfolio means working towards a better chance of profits, and discipline can help keep you on the right track.

Statistics tell us that the average credit card debt per person – including all people who pay off their cards each month – is over $5,500. Many folks struggle to handle the big picture of their personal financial world.

If you are one of these folks, you can learn what the steps of financial planning are and even get started today, either on your own, using resources on the Internet, or by hiring a financial professional.

An important first step of financial planning is organization. You can work towards your financial goals in life by organizing your finances and understanding money flows, both inflows (like your paycheck) and outflows (bills).

If your financial life isn’t terribly complicated, an Excel spreadsheet may suit your needs perfectly. However, using something a little more sophisticated, such as Mint, Quicken or other online budgeting tools may become necessary, as you and your financial life continue to evolve.

There are a million ways to approach organization, but the “how?” may be nowhere near as important as “when?” In some cases, the answer to when you should start organizing is now.

Whatever method you choose, once you set up the system you can enter historic information as far back as 12 months (if you have it). This may require digging out the old bank, investment and credit card statements. It may not be as intimidating as it sounds. In today’s connected world, you might be able to simply download the transaction history from your bank, investment or credit card companies, and import it directly into your Mint or Quicken file. You still need to go through things, but much of the data entry may already be done for you.

If you don’t have the time, the facility or the patience to enter this historic information, don’t give up. Tracking your information from today forward can be valuable as well. Think about it: In a year, you’ll have 12 months’ worth of history in your system.

As you generate this history (or review the old history), patterns of your spending habits can emerge. Perhaps you spend much more on golfing than you realized, or maybe your home decorating expenses were greater than your mortgage payments over the last year. Each of these patterns can help you to understand where your money goes. Once you know that, you can begin to control it.

Quicken or Mint.com also organizes your investments, which takes us to the next step: efficiency.

If you have a couple of old 401(k)s from former employers, you can look at all investment accounts from a top-down perspective, using these tools. For many folks, it may be the first time you see all your investments in one place.

This is when you can adjust your allocation for a more comprehensive portfolio. You might think your investments were diverse enough but find that you bought the same investments in multiple accounts. Possible future allocations may include spreading your money across many different broad asset classes.

Now we’re into the place where the rubber meets the road. After you organize everything in an efficient manner, you should work on maintaining this organization over time. This may require some level of discipline.

You may need to balance your checkbook at the end of the month and keep your information up-to-date when you receive the credit card and investment statements. The automated tools can help a lot, but you might not want to just let it go on autopilot. You may decide to sort through the information to understand what’s going on with your cash flow and investments. You might need to change your spending habits or rebalance your investments if they get out of line.

But what takes the most discipline may be maintaining your investment allocation as planned when the market is very volatile. You might be tempted to pull out of the market after a big loss or start buying in when the market has a huge run-up. Keeping you disciplined is quite often the major benefit of having a financial professional, who can help you maintain the proper long-term perspective of your investment allocation and not let emotions rule the actions.

 

 

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This article was prepared by AdviceIQ.

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Coordinating Your Investment Strategy with Your Financial Future in Mind

November 5, 2019 Tags: , P&S

“Where should I invest my money?”

This is probably the most common question that financial advisors receive when they sit in meetings with clients — and even from family members around the holiday dinner table!

It’s a good question. After all, we all know that smart investing is the way to grow money for future use or to pull out in case of a financial rainy day.

But, it’s a loaded question. The “best” investments are relative. Markets change daily and multitude factors contribute to make Investment X a superb pick for Joe (the client your advisor met with an hour before your meeting), but would not make an ideal addition to your portfolio.

Today, we’re going to discuss some of the steps you can take to determine your investment strategy.

First Things First: Map Your Ideal Financial Future

There are a lot of things you could do with your money. You probably have some ideas about where your money — present and future — could best be utilized.

When it comes to narrowing your investment strategy, you need to create a clear picture of your ideal financial future. You can’t know how to save if you don’t know what you’re saving for!

Ask yourself what you want to do with your money. Do you want to send your kids (or grandkids) to college on a full-ride to the schools of their choosing? Do you want to have the freedom to invest in friends’ and family members’ business opportunities? What does your ideal retirement look like? How about the assets you’ll leave to your family after you pass away?

These factors, and many more, go into painting a clearer picture of your ideal financial future. And this picture is unique to you — even your spouse might have a different picture than yours.

Once you get an idea of where you’re going, you need to build a team that’ll help you get there. That’s where a financial advisor comes in. Your financial advisor can help you translate your ideal financial future into figures and timelines that give you a better idea of what you need your investment strategy to do for you.

Take a Realistic View of Your Financial Future

It’s important to see your financial future in realistic terms. For some investors, future events, like retirement or sending the kids to college, seem like far-off, almost impossible events. But they’re coming, whether you’re ready for them or not.

Ideally, your investment strategy exists to help you proactively prepare today for the reality of tomorrow. You need to put real dates and numbers on future events to help you and your financial advisor get an idea of what investments to explore and which to ignore.

Take retirement, for example. When discussing finances, we can easily fall into the trap of considering retirement as some vague time off in the distance. But you’re a real person with a real career that will end at some point. Eventually, you’ll put in your notice, they’ll throw a party, and you’ll retire.

What does that next day look like? Is it ten years from today? Two? Thirty? The length of time between now and your ideal retirement date is critical for your financial planning. Similarly, you need to consider factors like how long you anticipate your retirement to be, the quality of lifestyle you’d ideally like to enjoy, and how other family members factor into this picture.

Be Open to a Variety of Investments

If you’ve spent any time researching investment strategies, you already know that diversification is important. You can’t put all of your eggs in one basket and hope for the best.

Perhaps you already have an idea of which investments might fit your situation well. It’s important to tell your financial advisor your thoughts regarding your investment strategy so that your advisor can get a feel for your risk acceptance.

However, you will want to approach your investment strategy with an open mind. While you might think that building your strategy one way or another is the best way to go, your financial advisor will bring a professional viewpoint that might not be the same as yours.

This is a good thing. This is why you’re working with a financial professional in the first place. Your advisor might suggest investment strategies that you’ve never even thought about before. Or they might have insight to a mix that could potentially work with your investment timeline.

You want to stay flexible and open to possibilities beyond those which you’ve previously considered. Your advisor should never push you into one investment strategy or another, but they may give you just the nudge you need to settle on a strategy that you would have never considered on your own.

Review and Re-Adjust

Of course, establishing an initial investment strategy is only the first step. A single meeting with a financial advisor and a path forward can’t possibly account for all of the things that’ll happen as you wait for your future to pan out.

There are any number of factors that can turn even the “best” investment strategy into something that may not look like it is working. This doesn’t mean that you (or your financial advisor) were wrong. It’s just the nature of investing.

This also doesn’t mean that you should panic or become disengaged. It simply means you need to review your strategy and see where it may need to be adjusted.

Because markets and other factors change frequently, it’s important that you have regular meetings with your financial advisor. This way, you can identify potential problems and make changes as needed. 

Your financial advisor can help you to see where your strategy might be weak in helping you achieve your goals and provide guidance in identifying an alternate strategy that’s a better fit. Additionally, your advisor should keep a close eye on your portfolio performance and provide periodic updates for your review.

Align Yourself with a Knowledgeable Guide

There are a lot of moving pieces involved in developing an investment strategy with your financial future in mind. But the good news is that you don’t have to navigate the path to your financial future alone.

When you work with a financial advisor to answer the question: “Where should I invest my money?”, you’ll start to understand that this is far from the only question to ask when contemplating your financial future. In fact, you’ll probably come up with a whole lot of other questions that require answers.

Thankfully, you don’t have to find the answers on your own! Your financial advisor can offer their experience, expertise and professional guidance.

Have some investment questions of your own? Contact Puckett & Sturgill Financial Group for a consultation!

    There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk.