A financial planner is a financial advisor who takes care of your finances, taxes, estate plannings, insurance, etc. The Certified Financial Planner boards of the standard provide a certification by the Financial Standards Board (FPSB) to the individual eligible for education, experience, and ethics. They have also cleared the exam of CFP. This is a very prestigious and globally recognized certification by the global finance community.
What Is A Financial Plan?
Financial planning is a process that helps you to plan for your future financially. It will help you manage your money to work your money for your long term goals or retirement. You will live a comfortable life without any financial difficulties if you have a sound financial plan. It will be helpful if you hire a financial planner to get professional advice, but you can make a plan yourself.
Financial planning is not just for rich people. It is important everyone has a plan to control their finances. This financial planning is quite affordable and accessible for the people.
Sample Comprehensive Financial Plan Examples
Suppose Alice and Joey want to have a financial plan. Therefore, they fill the information regarding their details to help them provide their financial position. This couple has not made the financial plan for their future. They are living their life without any solid financial plan. But, they have many investments and insurance coverage.
Property and Cash Assessment:
Alice is an employed worker and makes $2,00,000 per annum for real estate, and Joyce is a self-employed entrepreneur with a salary of $30,000.
They have a total cash savings of $3,00,000 and have bonds and stocks in the brokerage account of (basis) $3,00,000 and $6,00,000 current value. Alice has the protection of $400000 with a 7% employee match. Joey has a $6,00,000 SEP IRA.
Alice has $150,000 worth of car with a $40,000 balance loan. The car is of 2 years and six months old. They have a house worth $700,000 with a $150,000 mortgage at a rate of 6.5%.
Alice has life insurance of $400,000, with a monthly premium of $250. Joey has life insurance worth $85,000 on death, $30,000 cash value, and $20,000 on a monthly premium of $150.
Joey will get a pension of at least 40% of the highest average salary for the rest of his life. He will retire at the age of 45 years. Therefore, his pension will be $140,000 approximately. But, Alice will not have any retirement plan as she is self-employed.
Joey will have a retirement annuity of $350,000 current value and a $230,000 basis. Alice reaches the maximum limit of $401,000.
The couple spends about $11,000 of monthly expenses on food, transport, entertainment, taxes, utilities, etc. Alice will have a monthly Social Security funds $8050 at the age of 60. He will get his social security benefits when he turns 60. They have a plan of having children after a few years.
Best Financial Plan For Them
Alice and Joey have excellent plans and will live their life comfortably. Since they do not have a double income and no child, they live comfortably without any financial trouble if they decide to retire early.
While Alice is employed with job security, Joey has no income security as he is an entrepreneur. They can invest in some stocks and assets if they want to. It will help them to increase their income. These fixed assets will lower their portfolio risk. They do not need a big house, so they should not spend money on a massive house as they have a double income and no child. They can also cut their car budget to $20,000.
If they buy a small house of $150,000, it will help you save your money of around $500,000. You can invest these savings wherever you want.
Strategy And Analysis Of Investment:
Alice and joey must invest some of their money for a better future. They must increase their assets allocation as well as equity portfolio up to 75%. It will help you to live comfortably if you want to retire early. They may lower their expenditure by about 55% and invest their savings.
To achieve their financial goals, they can they must invest two different accounts. They can invest around 80% in tax-deferred accounts and 20% in the qualified accounts with low gain rates such as bonds, dividends, real estate investment, etc.
The couple needs to find investment vehicles that will let their money work for them. That can help them increase their assets and achieve their financial goals even faster.
Joey must buy a life-term policy, and Alice should have long-term care insurance. It will help to prevent any financial difficultiesforJoey when he retires before 60 years old. They may also consider taking a health cover.
Roadmap To Planning A Financial Plan
You need to follow some steps to plan your strategy for finance as follows:
· Make Your Finance Strategy:
Your financial goals will decide how you will live in your future if there will be any financial difficulty. You must set your goal depending upon you. It all up to you what you want to accomplish and set your goals. By placing your goals, you will be able to analyze your progress. You should know what your goals are.
· Be Prepare For The Funds:
It is essential that you make sure that the plans are made, considering any emergency. If you do not take care of any mishappening, you will sink in debts. Therefore, it is better if you start your emergency funds.
· Be Debt-free:
It would be best if you take care that you are under no debt. Too many debts damage your credit score. The debts are always detrimental to you and your future plans. It would be best to strive for a debt-free plan and strategy; else, you have to face much financial trouble in the future. Therefore, you must pay all of your debts as soon as possible.
· Have A Investment Plan:
If you want to increase your income growth, you must invest your money in various qualified and non-qualified accounts, stocks, etc. It is a long term activity to increase your net worth. You must try to have the required knowledge about investing to take the most benefit about it. You can also hire a financial planner who will guide you about where to save and where it is risky to invest. You should invest a certain amount of income in investment monthly.
· Get Insurance plans and policies:
Life insurance is a legal contract between the insurer and the insurance company. Almost everyone pays for their protection. Nobody is sure about their life. No one knows if what will come tomorrow. So, this insurance just helps in getting security for their family in case any mishappening occurs. People get life insurance because their loved ones don’t have to face any financial hardships. You must buy life insurance if you do not want your family or business to suffer after your death. The death benefit will take care of everything after you.
· Have A Retirement Plan:
It would be best to make a plan about how much you want to save for your retirement. It would be best to plan when you want to retire and how much you need to commit to fulfilling your plans. It is never too early to prepare it. You must plan it carefully as it will decide your future.
· Plan About How You Can Lower Your Taxable Income:
It would be best if you notice your taxable income as it will impact your cash flow. You must make strategies for a tax deduction that will help you to save money on tax payment. You may concern a financial planner to guide you regarding all the taxes. They will help you to reduce your monthly taxes.
· Estate Planning:
Estate Planning is quite beneficial for you as a source of income or increasing your net worth. It is essential for you. You may rent your estates for monthly payment. You can sell them whenever you want in terms of any emergency or financial difficulties. Your financial advisor will help to decide how much worth estate you must buy or sell.
· Make Changes In Your Finance Plans Wherever Needed:
You must review your plan frequently and make changes needed depending upon your dreams. There may come a time when you want to make different goals dut to some circumstances. These circumstances include insurance change, risk tolerance change, etc. It is essential to check your financial plans frequently after six months. If you do not maintain your plan, you may have to face some financial trouble.
· Learn from your mistakes:
It is not easy to make a perfect financial plan. You need to be careful and take the right step as it depends upon your future. But, sometimes we make the wrong decision and get in some trouble. You may lose some money, give a lot of tax, have taken too many debts. So instead of getting stress, you should learn from your mistakes and improve your plan to compensate for the loss. You may ask your financial expert to advise you about the issue and make sure that everything.
These are some things you need to take care of your finances. You can make your financial plans yourself, but it is advised to have a qualified planner for the best decisions.
Importance of Financial Planning:
· It is challenging to manage your income without any plan. You need to take care of that you do not spend too much money. If you do not make any savings, you may have to face some trouble due to a lack of funds. Financial planning will help you to take care of all this.
· To increase the cash flow, you need to invest some money and reduce taxable income. It will help you to improve your capital and overall financial well-being.
· Financial planning will ensure that your tax planning, expenditure, and savings are taken off to keep more of your income.
- This planning contains insurance for family security. You must take insurance when you have planned for the future of your company or your loved ones. It will take care of your family’s plan, such as children’s education. Your all desire will take into consideration by the death benefit. Your leftover debts, such as home loan, car loan, or personal loan, will be paid after your death with your death benefit.
- It will help you have adequate savings so that you can fulfill your desires and have a high standard of living. It also provides insurance coverage that makes sure that you do not have to suffer in any mishappening.
- When you set your financial goal, you get knowledge of economic understanding. It will help you to make the right decisions for themselves. It will provide you a better way to make your budget.
- It will make your future more secure by making you invest your money in assets, stocks, etc. With the help of this, you can enjoy your life comfortably without any financial trouble.
- Your savings made by your financial goals will secure your and your family’s future. It is better to have some extra money in the pocket if you do not get your income in a month.
- You will get great advice regarding your finances to achieve your goals. Your financial expert will guide you to make the right decision.
These are the reasons why you should have a plan. The financial planners will be able to maintain your finances and provide you with satisfactory and trustworthy results. It is your money, and you worked very hard for it. It would be best if you are careful before hiring an advisor to protect your future.