A financial plan is more than just a budget or insurance policy. It is the actions you need to take to reach your financial goals (think: helping fund your daughter’s college tuition or buying that second home on the lake). Your financial plan is unique, but to ensure confidence in the planning you have (and will) do, we want to share some general bits of knowledge to set you on the right path.
Flexibility is key.
Saving strategically into the different “buckets” that apply to you will help you face life’s biggest curveballs confidently.
Be sure you are setting yourself up for success by saving into retirement accounts (Roth accounts, employer plans, and IRAs – or whichever are applicable) and taxable accounts (cash and investment). By strategically saving into the different types of accounts, you will give yourself flexibility in long- and short-term goals, as well as options from a tax perspective.
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Plan for life.
Life changes on a dime. If you want to strategically save, but don’t know where to start, consider this action plan.
- Build a cash reserve. An ideal amount is: 3-6 months of income if you are a dual income household or a single person without dependents; 6-12 months of income if you are a single income household with dependents; or 18-24 months of cash needs (i.e. portfolio withdrawals) if you are retired.
- Save to your 401(k). At least, save enough to get the full employer match if it is offered, and give your future self a raise by increasing the percent you are contributing each year.
- Max out your Roth IRA contribution each year, if you qualify. This is especially applicable if you are several years from retirement.
- Adjust your stock market exposure based on your goal timelines. If your goal is long-term, you have enough time to withstand to market volatility and still achieve that goal. If your goal is short- to mid-term, you will want to have a more stable portfolio (more bonds) to ensure market movements do not force you to defer your goals.
3. Plan for loved ones.
An integral part of your financial plan is your estate plan. Every adult (even the 18-year-old you just dropped off at college) needs an estate plan. Here are the documents you should consider:
- Healthcare Power of Attorney: Names the person(s) who will make healthcare decisions for you should you not be able to make them for yourself. The same applies to your adult child. If something were to happen, and he or she does not have this document naming you as the Attorney in Fact, you do not have rights to his or her medical records.
- General Power of Attorney: Names the person(s) who will handle financial responsibilities for you should you not be able to do so yourself. This is still a very important document, which everyone should have.
- (Pourover) Will: Outlines where assets in your name go upon your death and names guardianship for minor children. All parents with minor children need this document.
- Revocable (Living) Trust: Dictates where assets – titled in trust – are transferred upon death of grantor and names a successor Trustee whom manages assets held in times of incapacity. More complex financial lives often call for a Revocable Trust. Pourover Wills essentially dump assets not titled in trust into the Trust upon the death of the owner.
4. Plan for the unwanted.
Unfortunately, life doesn’t always go as planned. So when the unfortunate happens, how can you be confident that you have the right insurance coverage? There is no right or wrong answer, but keep these things in mind, and you can be sure you’re on the right track.
- Term Life Insurance suits most people with a need for life insurance coverage.
- Annuity contracts are typically expensive (and should not be held in an IRA).
- Health Insurance is complicated; seek out a true expert.
- Property & Casualty Insurance (i.e., Homeowners/Auto/Umbrella) needs to be reviewed often. Reviewing during policy renewals and during life events (including getting that cute puppy over the holidays) is a good cadence to target.
- Long Term Care Insurance should be reviewed carefully before surrendering when premiums jump. It may be worth paying the increase to ensure your long-term financial plan is solid, or it might not.
- Disability Insurance: if your employer offers it at little or no cost, take it. If you are a single income household, it may make sense to also purchase a supplemental policy.
- You do not need an Aflac policy (if you have a sufficient cash reserve).
- Insurance Agents and Insurance Brokers: there is a difference. Insurance agents can sell you a policy from the insurance agency they work for. Insurance brokers can shop for policies from several different insurance companies and sell you the policy that fits best.
5. Know when to ask for help.
Your financial life can get quite complicated. There are so many options, sources of information, and “experts” in the financial industry, it can be hard to know whom to trust and what the “right” decisions are.
While there is no clear-cut answer, consider asking these questions if you are interviewing new advisors. This will help you guide that conversation to find a true partner in your financial journey.
Navigating your financial journey can be very rewarding, especially when you know you are on the path to reaching your goals and financial independence. Our goal with InspireHer (and at Plancorp) is to help you and your loved ones be confident that you can do just that.
Now you know that a good financial plan includes many facets of your financial life – all of which drive your investment planning. Want to take the next step and learn how to become a more savvy investor? Check out this post by Stacie Carrabine, our Investments & Research Manager, to learn how to strategically approach your investing life.
Disclosure:
This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.
This post was written by a member of the Plancorp Women’s Initiative, which strives to advocate for clients and women in the community by addressing topics specific to their financial lives. For more information about the Women’s Initiative and how you can get involved, email sara@plancorp.com or visit the Plancorp Women’s Initiative page.
