Every individual who is concerned about their future (which should be everyone) needs to figure out and organize their financial goals and needs. These goals and needs will be dependent on your life stage and can and will evolve over time. 

You should construct a Financial Plan that provides detail on how you will best meet your future financial goals and needs and review this financial plan at least annually. So put together both a cash flow analysis and net worth statement to include in your financial plan. Understanding your own tax rate including how taxes will impact your cash flow is important. 

You should develop a Financial Plan, implement it and maintain it in both good times and bad. You should put your plan in writing as this will help to accomplish both clarity and discipline. Realize that a reliable long-term Financial Plan may not be exciting and developments within the plan may be slow. Your Financial Plan should outline the following: 

Your financial needs 

  • The timing of these financial needs 
  • The goals you have for your investments 
  • The allocation of assets to meet these goals 
  • An idea of when and how you will maintain the plan (you should review your plan at least annually and at major life changes) 

Choices and decisions within your plan 

Your Financial Plan will incorporate many topics we cover in detail in other parts of the “Financial Planning Solutions” series such as your education and retirement savings, insurance, Social Security benefits, Medicare coverage and estate planning. The best way for you to understand a Financial Plan and its creation is probably to review a simplified example of one. You can find numerous examples online and we provide a very basic sample for you here. 

What will Your Financial Plan look like? 

Your Financial Plan can take numerous forms and vary in length. The important thing is that your Financial Plan incorporates the relevant financial information and works for you (can you understand and stick with it). The sample plan we provide here is not overly complex, but covers a great deal of what you will want to address in your own Financial Plan. Since the Financial Plan we provide is fairly basic, you will want to explore adding elements like a cash flow budget as well as retirement and education funding projections.  

Sample Basic Financial Plan 

FINANCIAL GOALS:  

  • Organize various aspects of financial life. 
  • Establish a formal Financial Plan including educational, retirement and estate planning needs.    
  • Set time for periodic review of the Financial Plan going forward. 
  • Optimize all investment accounts and review portfolio choices to meet Financial Plan needs and goals. 

How will my Financial Plan Change? 

Once you complete an initial Financial Plan, it will inevitably evolve. Your Financial Plan will change naturally as you age and as life moves forward. We detail these types of changes to your Financial Plan below. 

Younger Life: When you are young, you are learning to save as well as the ins and outs of investing. You should develop the discipline to come up with an asset allocation and stick with it. You should participate in any corporate retirement plan available to you and make sure you receive any company match. 

At this stage, your Financial Plan should focus on forming a cash budget, retirement planning, education savings if you have children, and insurance if needed. Your cash budget may incorporate saving for outflows such as a wedding or first home. 

As a young investor, you have time and earnings power on your side. This might lead you to believe you should invest aggressively because you have enough time to replace losses. The situation isn’t quite that simple though. 

A young investor may be diligently saving for a large purchase such as a home. These savings may not be appropriate to invest aggressively. In addition, a young investor may not have much cash cushion prior to dipping into funds that should be used for essential expenses. This could lead to a more conservative investment portfolio.  

Mid Life: During this “mid-life” period, your career and family life should settle down a bit and you will have more insight into your income and finances. You will be moving towards retirement with a number of productive working years already in the rearview mirror. You may have a few “balls in the air” at this time in your life and cash flow budgeting will be key. 

You will likely be focused on saving for your children’s education. You will make sure to have the correct insurance policies in place to protect your family and have a more detailed idea of how much money it will take for you to retire. To do this, you should estimate your future living expenses, the value of future income streams (pensions, social security etc.) and your investment portfolio’s potential returns. 

This is the point in life when you will hopefully reach a higher level of income, so tax planning will become more of a concern. Usually investors during this time period will use a more aggressive or moderately aggressive portfolio to grow wealth. 

Transitioning/Evolving Retirees: This period is typically marked by peak earnings and savings years. Ideally at this stage in life, your household expenses will have  stabilized and any children you have should hopefully be self-sufficient. 

There is no official pre-retirement period, but during such a time you’ll start trying to address questions such as; When do I retire? Do I have enough money to retire? 

How much can I afford to withdraw annually to fund my retirement? Your focus should be on a cash flow budget that incorporates these variables. You should familiarize yourself with Social Security and estate planning. 

You should figure out the most tax efficient way to withdraw funds in retirement. Worries about retirement can cause conservatism as you convert your portfolio from an accumulation phase to a distribution phase. In terms of asset allocation, safety of principal will become increasingly important, but your assets may continue to need growth because you still have many years to live. 

Mature Retirees: At this point in life you should get your financial house in order. You may want to make sure someone else has an understanding of your investment accounts, insurance documents and estate plan including knowing the location of all relevant documents and contact information of all professionals you work with (accountant, lawyer, financial advisor). 

Your cash budgeting should focus on how you meet ongoing needs, and estate planning should be front and center. You should consolidate your financial accounts as much as possible for simplicity. 

Health and healthcare costs may become more of a factor in your life. Your asset allocation during this period can take a number of forms. If you need all of your assets for living expenses your asset allocation may be more conservative. If your asset base is sufficient to cover all your expenses and you plan to provide assets to heirs, you may want to have a more aggressive portfolio to better match the age of any heirs.

So hopefully after reading this article you will have a grasp of the basics of devising and implementing a financial plan for yourself. There are a number of tools available online that can help you with this and hopefully your financial future is now secure!