Ideally, individuals and families should set realistic, achievable goals and then prioritize those goals according to their values. Ideally, this should all evolve in a logical, painless and orderly way. Yet the prospect of taking one’s financial affairs in hand can be daunting. According to the National Association of Personal Financial Advisors, in 2012, 56 percent of U.S. households lacked a budget, 40 percent of adults had no savings other than retirement funds, and 50 percent of adults with young children had no will.
As is the case with all monumental tasks, financial and estate planning is more easily accomplished when broken down into smaller components. But where to start? Here’s some advice I’d give to someone starting the process.
The first and most obvious exercise is to understand where you are today. In addition to understanding your assets, liabilities and net worth, you should create a cash-flow statement, mapping your income and both your fixed and variable expenses. For most this will be an eye-opening experience, both good and bad.
The goals discussed above should be prioritized and categorized. In other words, is the goal a need or is it a want (like a home versus a boat).
You will need to determine whether you have sufficient funds to begin investing to meet your goals, and, if not, how you can change your goals and/or your spending habits. You may have to decide what truly is a need, and what is merely a want.
Hopefully, you begin this exercise early on in your professional life, when instant gratification can pose a challenge to your ability to save so that your odds achieving your long-term goals improve. Once you have a clear picture of your goals and your financial situation, begin strategizing. First, take what you are given. If your employer offers a 401 (K) plan, and matches the funds you put into it, take advantage of that. Take advantage of any stock options your employer offers. If you have children, open a pre-paid tuition account or fund a 529 plan account.
When you first begin to invest you should consider low cost, diversified mutual funds or some of the many robo-advisor solutions available today. There are also many programs available online to help you project the expected growth of your investments to help you frame decisions regarding your ability to meet long term goals.
As you amass more investments including those beyond liquid investments like real estate or private interests, your financial picture will become larger and more sophisticated. They say to expect the best but prepare for the worst. These words ring very true when it comes to financial planning. A death, disability or a catastrophic litigation against you can destroy the most well-developed investment plan and wreak havoc on your goals. It is important to perform a risk analysis and obtain proper insurance which may include health, life, disability, auto, homeowners, flood, hurricane, liability and in affluent situations umbrella insurance.
With a larger, more sophisticated financial picture it you will need active professional advice to keep things on track and moving forward toward meeting your goals. You will need someone who can work as a team member with your attorney, accountant, insurance agent and other professionals where your plan and investments are concerned. That’s where a wealth advisory firm such as Coral Gables Trust Company can play a valuable role.
Once you have an established plan, it’s important to re-assess the plan as material events — both good and bad — come along. A birth, job loss, a major car accident, all trigger changes to your financial circumstances. Even without any major life changes, you should review your plan at least once a year. We all change as we go through the various stages of life, and our goals change, too.
At Coral Gables Trust Company, any of our clients with at least $1 million in investable assets is entitled to a complementary base financial plan including annual updates and re-assessments. It’s our way of helping to ensure that you continue to achieve your goals, as they evolve along with you.