When it comes to your personal financial well-being, a financial plan is an invaluable tool to have. A good plan will give you a detailed view of your assets and debts, cash flow, and the protections on the life and property within the plan. While it might seem like an overwhelming process at first, the benefits are worth it.
If you already have a financial plan, great job! Make sure it is updated at least annually. Account values change, loans get paid off, new debts get added, personal property is bought and sold, and your financial goals can change.
If you do not have a financial plan, the best time to get one is now. Look online to find a financial advisor or wealth management company with advisors on staff. It is possible to do financial planning on your own, but important factors could get missed. You should at least have a financial planning professional who is a fiduciary review it.
Having a financial plan is a key factor in improving your financial wellness. Other benefits include:
- Knowing where your money is going. This will likely be the most noticeable effect once you have a plan. Knowing at a glance how much was saved, how much was earned, and how much was spent in a given time period is invaluable.
- Peace of mind. Understanding where your finances are overall, what areas need improvement, and where you are doing well can take a lot off your mind. It can also help you keep track of accounts you might have forgotten about.
- Improved saving. When you know how much is needed for a goal, your chances of reaching it are much higher. Those with a financial plan are more than twice as likely to save enough for retirement.
- Goal achievement. Having enough for retirement isn’t the only goal a financial plan can include. Education funding, paying off debt, funding vacations, doing charitable giving, and anything else you can attach a dollar amount to can be accounted for and tracked in a plan.
- Knowing your alternatives. Maybe there is a goal that isn’t going to be reached. Knowing that beforehand allows you to seek suitable alternatives.
- Estate planning insight. Want to leave a legacy with your wealth? If you know leaving money to people or organizations that are important to you is part of your estate plan, a financial plan will help.
- Tax planning. A financial plan can help you foresee future tax obligations or opportunities and prepare for them. Many individuals have periods of lower income between retirement and the start of required minimum distributions. This is an excellent time to take advantage of Roth conversions at a lower tax rate.
- Investment allocation coordination. Most of us don’t have only one account set aside for saving. You may have a 401(k), IRA, Roth IRA, or more just on your own. If you have a spouse, they might also have multiple accounts. With a financial plan you can get a combined look at these accounts to how they are invested and align them to your risk tolerance.
What should be included? A thorough plan should include just about everything you can think of related to your finances.
Assets
- Retirement accounts (401(k), IRA, Pensions)
- Investment accounts
- Bank accounts (checking, savings, CDs)
- Personal property (real estate, land, automobiles, anything else of substantial value)
- Business interests
Liabilities
- Mortgages
- Personal loans
- Student loans
- Any other debts
Protection
- Life Insurance policies
- Long-term care policies
- Property/Casualty insurance policies
Once your plan is complete, the next step is to put it in action. You don’t need to make immediate alterations to your lifestyle. Start incrementally increasing your 401(k) contributions. Create a dedicated account for certain goals and save directly to it.
Want to start a financial plan? Give us a call at Heartland Trust Company. The most important step is to start the process. There is no benefit in putting it off.
