October is Financial Planning Month so I want to go into a little detail about why financial planning is so important and what aspects need to be considered.
Now let me start by saying money is not the end all be all, but having some is better than having none. Being financially prepared is incredibly important, both for your psyche and for your budget.
Why financial planning is important
Saving some of what you earn is the first step to financial preparation. Having an emergency fund is essential. Those who don’t have emergency funds probably have to pay for emergencies with credit cards. That leads to debt and money wasted on interest.
What about saving for medium-term goals? Being able to save for a down payment for a house can save you money on your monthly payment, and can make your offer to buy more enticing in this competitive market. The less you “finance” the more you save because you’re not paying (or you’re paying less) interest.
Saving for retirement is paramount. Social security will not pay all of your expenses. You need supplemental income to be able to live when you no longer can earn money.
To be able to save, you need to plan. That plan is called a budget and you need to set one so you know how much you HAVE to spend on necessities, how much to save, and how much you COULD spend on wants.
Planning also matters so you stay out of debt. Unplanned expenses come up and it’s vital to have money saved up during those times.
What goes into a financial plan
A few of them I’ve mentioned so far – having an emergency fund, having a savings plan in place for medium-term goals, having a retirement plan in place for when you need it, and budgeting.
A great financial plan takes two approaches – macro and micro. A macro view of your financial plan is more of an outline. How much do you save for this, that, and the other (emergencies, short-term and medium-term goals, and retirement).
The micro has to do with the details and how you meet those goals. What kind of debt payments do I need to make in order to have it paid off in three years? How much do I need to save per month to have my down payment ready? How much do I need to save, given a projected ROI, to meet my retirement nest egg goal?
Insurance
Another important piece to your financial plan is your insurance. Are your home and vehicles adequately protected? Are you protected? Is your ability to earn a living protected? Making sure you have proper coverage for your property, liability, and your life is vital.
Estate planning
Creating a plan for yourself and for your family is the last step. If you have assets you want to leave them and/or liabilities you want to take care of, you need to spell that out in a legal document (like a will or a trust). An estate plan is all-encompassing and needs to include your investments, property, liabilities, and insurance.
Related reading:
Financial Planning for All Ages
Financial Planning Basics: The Financial Pyramid
Why Financial Literacy is Important
Disclaimer:
**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com
Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.
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