Using a Plan to Invest in Tomorrow, Today

  • By NestWise
  • March 04, 2013

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As part of the foundation for getting your financial life in order, a written Financial Plan helps you set and prioritize your financial goals, and avoid costly mistakes. Kent Smetters discusses how a Financial Plan can help you make good decisions.

A written Financial Plan forms the very foundation of getting your financial life in order. It also serves as a starting point of the discussion of your financial goals with your spouse and Financial Advisor. You should consider a written Financial Plan, even if you don’t view yourself as having that much to invest today.

There are some pre-retired households who work with an Advisor that do not have a written Financial Plan for their retirement. Some do not even have written plans for preparing for pre-retirement goals such as college tuition for their kids or paying down debt. Yet, I believe that a vast majority of households would indicate that they would want a written plan. A good plan can go a long way to preparing for a good life.

Prioritization of Goals

The most important role of a Financial Plan is to help you prioritize your goals in the face of limited resources and the numerous claims on them. Should you save more for retirement or for your child’s education? Or, should you pay down your credit cards a bit faster? How much insurance - and which types - do you need to protect your loved ones? And, while nobody likes to think about their own demise, how will your assets be distributed when you go? A simple will and testament is only part of the puzzle.

A good Financial Plan not only helps you address these technical problems, it is also often the first step in an important conversation with your spouse or other loved ones about your priorities, exactly what you are trying to achieve in life. Most spouses have not discussed their longer-term financial goals with each other, which could maybe explain why disagreement over money is the most cited reason for divorce. Getting on the same page earlier can often lead to a more balanced life and even potentially save your marriage. Getting a Financial Plan is a great conversation starter.

Avoiding Costly Mistakes

A solid Financial Plan has the potential to pay for itself many times over by helping you avoid some costly mistakes. Probably the biggest mistake is failing to save enough. According to the Employee Benefit Research Institute, a majority of Americans over the age 55 have at least $50,000 saved for retirement. That’s dramatically less than what is needed to provide a decent retirement income. While individual couple’s needs vary depending on the type of retirement they are planning, an average husband and spouse entering retirement today needs about $415,000 just to make sure that they have $2,000 per month in available income during their remaining lifetimes, not including Social Security. They would have needed to have saved even more money if they want to ensure that their monthly income keeps pace with inflation over their retirement years. A written Financial Plan helps clarify the trade-offs between current and future consumption. It helps you keep spending in check today in preparation for a better tomorrow.

A solid Financial Plan also helps you avoid other mistakes. For example, paying down high-interest debt might be a smarter option than saving additional money in brokerage account. Maximizing your employer match to your retirement plan is usually also a good idea to consider. Knowing the right accounts – and the order of funding – in which to save and withdraw can save you a lot on taxes.

Get Started!

As Benjamin Franklin once said, “If you fail to plan, you are planning to fail.” There really is no reason to wait for getting prepared for a more balanced life.


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The opinions voiced in this material are for general information only and are not intended to provide specific advcie or recommendations for any indvidual. To determine which investment(s) may be approproate for you, consult your Financial Advisor prior to investing. Please remember, investing incoludes risks, including loss of principal. There is no guarantee that the implementation of a financial plan will yield positive results. Source: EBRI, Retirement Confidence Survey, 2011 RCS Fact Sheet #3, Figure 3.