Financial Planning Takes Work
If you’re responsible for the financial health of a company, it’s easy to neglect your personal wealth management goals. Finding the time to create a personal financial plan, however, is critical. A good plan documents your current financial picture and enables you to make the best spending, saving and investing decisions going forward.
In and out
Financial planning is the process of selecting and applying specific strategies to reach your goals. So if you haven’t already, identify what’s important to you. Do you hope to retire early and sail around the world? Establish a charitable trust? Ensure your grandchildren’s financial security?
You won’t know if any of this is possible until you assess your current income, assets and expenses, including:
- Income from all sources,
- Investments and other assets,
- Basic, recurring expenses,
- Major, periodic expenses,
- Funds available for nonessentials, and
- Expectations about future income and expenses.
A personal financial snapshot can make it easier to see whether you’re on track or need to revisit your current spending habits. For example, you may decide to cut back on luxury vacations to devote more money to your retirement plan or forgo a new car to send your child to a private school.
Financial planning isn’t only about cash flow. It’s a “big picture” plan that also accounts for factors that affect net worth, such as insurance coverage and tax obligations. If your home or a vacation property isn’t adequately insured, a fire could ruin an otherwise well-crafted financial plan. And overpaying federal or state income tax will leave you with less capital to invest.
For this reason, estate planning goes hand in hand with financial planning — particularly for business owners. It’s never too early to start thinking about what you want to leave your heirs, including how you’ll transfer your business to the next generation.
A crystal ball
Keep in mind that financial planning is a process. You’ll need to review and update your plan at least annually to reflect new life events and changes in your income. A financial advisor can help you design your plan and conduct periodic reviews to track your progress and make necessary adjustments.
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