Financial Planning FAQs

Financial planning is a dynamic process where clients work with a professional to identify goals, examine resources, and develop a roadmap to achieve their financial objectives. Financial Planning means much more than just investing. It can provide comfort in knowing how to stay financially on track throughout many stages of life.

The adage goes “If you don’t know where you’re going, how will you know when you get there?” The planning process helps identify not only what is achievable given your resources, but sometimes what is being overlooked. Ideally, it solidifies that your goals are really your goals and helps balance the pull and push of today’s needs, wants, and wishes with those of the future.

Get comfortable with asking of their experience in any area you are concentrating on (i.e., college planning, retirement, home purchase, inheritance, etc.) 

The answer depends on many factors such as your age, circumstances, goals, and values. If saving isn’t already a habit, the important thing is to get started at a manageable level and then strive to increase that level whenever possible. Always make sure you are contributing enough to receive any company matching contributions to retirement plans. Don’t leave that compensation on the table.

The quantifiable items are what you own, what you owe, and what you earn. In conversations with your financial planner, he or she will also help you uncover the qualitative factors such as your history with money and your core values, as they help you set achievable goals to work towards.

A financial plan should include a review of your goals and objectives, net worth, cash flow, investment portfolio, insurance, and taxes. These are the building blocks used to create projections and to design a plan for implementing strategies to achieve your goals. It can also include probabilities of success for meeting your goals to ensure the peace of mind for which we all strive.

A big part of an effective plan is becoming aware of and addressing the risks that may lie ahead. Insurance helps protect you and your loved ones against catastrophic events. Health insurance, life insurance, disability insurance, auto and home insurance can all be considered in a financial plan. A financial planner can analyze existing policies for their cost effectiveness and benefits to you and your family.

Stay actively involved. Executing on your financial plan is a team approach. If you have someone managing your investments, they should execute on your investment strategy. There will be other things like managing cash flow, opening accounts, and saving or spending at the “planned” levels that will require your active involvement. Communication and follow up with your planner will help you adjust to the bumps (up and down) in your roadmap to maintain the lifestyle you choose.

Choose a financial planner who has experience dealing with clients in similar circumstances to yours. You’ll also want to make sure that the financial planner has your best interests in mind, and that he or she isn’t selling you products that are not suited to your needs. Interview prospective financial planners and ask them about credentials, management strategies, and history of performance.

Asset allocation refers to the diversity of your entire savings and investment portfolio across asset classes. Stocks, bonds, cash and real estate are asset classes. Diversification refers to the types of investments held within each class. For example, both 3M and Union Pacific are high-cap equities in the Industrials sector. Because they’re in the same sector, these two stocks are likely to move up or down together. However, Tyson Foods is in the Consumer Staples sector. It is not likely to move in tandem with 3M or Union Pacific. Owning 3M and Tyson Foods provides diversification within the asset class of stocks. But that’s not enough. A portfolio that invests in multiple types of assets, not just stocks, is also important.

The key to successful financial planning is finding an honest and knowledgeable financial advisor that has you interests at heart. Any financial management company can potentially employ such an advisor. It’s great to side with a company that has a good track record of customer support, positive returns, and open cost structure, but don’t focus on this too much. Focus on finding an excellent advisor above all else.

Financial planning looks at a person’s overall financial picture. A financial planner will often ask a prospective client to fill out an extensive questionnaire in order to understand his or her financial needs and goals. The planner will usually put together a detailed, short-term 5-year plan designed to improve the client’s overall financial position. That may be followed by a long-term plan, along with suggestions about how to save and invest for retirement and a child’s college education at the same time. The planner will also look at ways to reduce current and future tax liabilities and protect assets by having the proper life, health, disability and long-term care insurance coverage in place. Finally, he or she may offer suggestions on estate planning.

Time horizon refers to the amount of time a person has to save for a particular event. For example, the time horizon for a college savings account might be 10 years for the parents of an eight-year old child, but 15 years for the parents of a three-year old. Likewise, the time horizon for a 30-year old saving for retirement might be 35 years, whereas it might be 15 years for a 60-year old who started saving late in life.

Financial planning covers all aspects of a person’s financial well-being. This includes savings, investments, retirement and college savings plans, insurance coverage, and estate planning. Retirement planning covers only investments made for retirement.

First, ask about his or her experience with people in a similar situation to yours. Second, ask about education and certifications. Third, ask about the breadth and depth of products offered. Fourth, ask how he or she is compensated for services. Finally, always be sure to check that the financial planner is fully licensed and in good standing.

A financial planner will be able to connect all of the financial dots in order to provide you with an overall plan to meet your financial goals. He or she should have training and experience in all kinds of financial products and financial aspects of your life – equities, bonds, insurance, taxes, and estate planning – to make the right recommendations for your personal situation. A financial planner can also save you thousands of dollars in tax deductions and find higher-yielding investment products at little or no extra risk.

While your financial planner may make a different recommendation based on your circumstances, it’s a good idea to see him or her once a year. You should also consider making an appointment in anticipation of life-changing events such as marriage, the birth of a child, divorce, or after inheriting a large amount of money.

Fiduciary means to hold a confidence or trust. A financial services industry professional who has a fiduciary responsibility to his or her clients must put a client’s needs and interests ahead of his or her own. Financial Advisors have a fiduciary responsibility to their clients. While stockbrokers and insurance agents are regulated and licensed, they do not have a fiduciary responsibility to their clients. The recommendations they make must only meet the “suitability standard.” In other words, the risk level of the product must be suitable for the client based on income, assets, risk tolerance or another standard that is specified in the prospectus. Advisors with a fiduciary responsibility are less likely to push products that earn them a quick buck.