FINANCIAL PLANNING – WHAT’S IN IT FOR ME?
April 27, 2005 - By Thomas B. Horton

Think of financial planning as a road map, a way to get from where you are today to where you want to be in a designated time with the fewest detours and potholes. You most likely have specific life goals, such as buying or building a home, starting your own business, funding college costs for children or grandchildren, or retiring with a comfortable income.

Personal financial planning helps you reach those goals through the development and proper management of your financial resources. Financial planning is a process, not a product. You may use specific techniques such as cash flow analysis, or financial products such as mutual funds or insurance, or creative solutions such as interest-only mortgages, but only as a means to accomplish the goals you’ve established.

Financial planning isn’t just for “the wealthy”—it’s about helping you achieve your life’s goals, whatever your level of affluence. Anyone who wants to take control of their financial life, make good financial decisions, and achieve financial independence can use financial planning.

Years ago, the financial life of the average family was relatively uncomplicated. People worked for the same company most of their lives, lived a few years in retirement on Social Security and their pension, and passed their modest estate on to their children. However, increased longevity, changing demographics, and a more complex, dynamic financial world have changed all that. Financial planning is no longer a luxury; it is a necessity for most Americans.

A financial planning professional can help you with any aspect of your financial planning needs. What makes financial planning so effective is that it takes a systematic, holistic approach to whatever needs you have. It recognizes that each financial element of your life—investments, insurance, taxes, real estate, and estate planning—is interlinked. Specific needs should be addressed in the context of your overall financial picture.

What’s in it for me? Gaining a clear picture, perhaps for the first time, of where you stand financially. Many families have no idea how much money they have in their estate, how they spend their money, or what they want their money to do for them.

Financial planning will provide direction and discipline. Without it, people typically make impulsive, random decisions: they buy this insurance, invest in that hot asset, and adopt the latest tax strategy. The pieces not only don’t fit together, they may actually conflict with each other and compound the problem. Financial planning integrates your assets with your goals and objectives. It will help you achieve your lifetime goals by motivating you to action.

Financial planning can give you peace of mind. Uncertainty about finances creates anxiety. Money is the most common cause of marital stress and divorce. If you know where you stand financially, where you’re going, and how you’re going to get there, you’ll feel more confident about your financial situation, about yourself and about your relationships.

Here are the most common mistakes people make with respect to their finances:

Failing to plan . People often spend more time planning a summer vacation than they do their financial future. If you don’t know where you’re going, you probably will end up somewhere you don’t want to be.

Failing to implement the plan . It’s like plotting a route on the map and then staying home.

Failing to begin planning activities early in life . The sooner you start, the easier it is to achieve the goals you desire. Saving and investing especially work best if you can start early to allow your investments to grow through the power of compounding.

Failing to organize your financial records . Records provide the benchmark for determining where you are and evaluating the progress you make.

Not being informed and involved . Ask questions. Lack of knowledge and involvement are what scam artists count on.

Can I do it myself? Most people do, if only by default. If you have the time and knowledge, and your financial situation is not too complicated, you may be able to do much of what needs to be done yourself. Procrastination is the greatest enemy of financial independence, and using a planner will keep you on track.

Some aspects of financial planning are too complex for most people, such as calculating how long your retirement capital will last or maximizing tax strategies. A competent financial planner will work with other financial services professionals, such as mortgage brokers, accountants, insurance agents, and attorneys to coordinate their efforts with your overall financial needs.

Thomas B. Horton, RFC, is an independent, fee-only financial planner in Shelby Township. He accepts no commissions and offers objective advice on an hourly, as-needed basis. His practice specializes in holistic family financial planning. Visit his web site at www.HortonFinancialPlanning.com or call (586) 997-3717.

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