Financial Planning

The topic of financial planning can be overwhelming to many people. Indeed, the extent of information available is somewhat limitless. That being said, there are some basics that most people would agree are part of sound financial planning. This article is intended to give you a brief overview of those basics. For more in depth assistance, we recommend seeking the advice of a qualified financial planner.

Set Your Priorities

The first step (and often the most difficult) is deciding what financial goals you seek to achieve. Some things to keep in mind here:

  • Set goals that are realistic
  • Prioritize what is most important and focus on that
  • Include family members where appropriate
  • Be flexible; your needs may change

Create a Budget

A budget is an essential tool for successful financial planning. Start by tracking your current spending, then compare that to your income and financial goals and determine where you may need to make changes. By tracking this over time, you can ensure that you are on the path you have set for yourself. There are a variety of tools and techniques for successful budgeting, but the essence of successful budgeting is tracking as much as possible.

Banking and Saving

Money in a bank is one of the safest investments available. It will not, however, offer the highest rate of return. Most of us want to have at least some money in the bank. Shop around for the best combination of interest rate, services, and fees. You can use bank products such as certificates of deposit (CDs) to get better interest rates if these fit with your goals and needs. Be aware of hidden fees like ATM charges and checking account fees. For some people internet banking can be an appropriate option as well.

Investing in Stocks

Owning stock means owning a small piece of the company from which it is issued. As an owner you are entitled to dividends and (hopefully) the appreciation of the overall worth of the business. Over the long term, stocks have historically outperformed all other investments. Over the short term, stocks can rise or fall sharply, making a solid investing strategy essential. A sound strategy will include appropriate diversification (spreading investments across a variety of industries, countries, etc.) and a thoughtful asset allocation program (adjusting risk exposure so that it is appropriate for your stage in life). A variety of tools and investment vehicles are available including mutual funds, index funds, and more. Your financial advisor can help you determine the right mix for your situation.

Investing in Bonds

Bonds are loans you make to a company (or the government) in exchange for being repaid your principle with interest. They are generally less risky than stock, but also offer a lower average return. If you sell your bond before it matures, you can make or lose money, depending on what has happened to interest rates since you purchased the bond. Rising interest rates means falling bond prices and vice-versa. There are a wide variety of different types of bonds. Your financial advisor can help you with the right mix for your situation.

Controlling Your Debt

Some debt makes sense (mortgages, college loans). Lots of debt does not. Try to pay off any credit card debt as quickly as possible. This is the most expensive debt out there and it can contribute to a downward debt spiral. In general, pay off your highest-rate debt first. Only take on debt you can manage—this will help preserve your credit rating in addition to being sound financial advice.

Expect the Unexpected

No one wants to live a paranoid life, but having a “rainy day” fund of 3-6 months worth of living expenses can give us great peace of mind in addition to being a solid financial strategy.

Planning for Retirement

If you are still working, be sure you are contributing the most you can to a 401(k) or similar retirement vehicle. Your contribution is tax deductible and the growth is tax deferred. In addition, many companies offer matching contributions which make this even more attractive. Other vehicles such as IRAs and Roth IRAs offer similar advantages, but with important differences. A Roth IRA contribution, for example, is not deductible, but the growth is tax-free, which can be very attractive for individuals with long time horizons.

Getting Help

When selecting a financial planner, ask if they have credentials (such as Certified Financial Planner or Personal Financial Specialist). Ask what services are provided—not all planners offer comprehensive services. Some just give investment advice or focus on one aspect of financial planning, such as insurance or taxes. Interview several professionals to find someone who can meet your needs and fits your style. Seek references and check credentials. Understand how they make money and make sure you are comfortable that their interests will align with yours.


A solid financial plan has as one of its cornerstones a solid base of insurance. This typically includes:

  • Health insurance
  • Life insurance
  • Disability insurance
  • Home insurance
  • Auto insurance

Be sure you know what your options are and that you understand the tradeoffs between different plans. In particular, be aware of the two different types of life insurance: whole life and term life. Whole life is expensive and has an investment component built into it. Term life is a true insurance product where you are only paying for the insurance it provides.


A sound financial plan will also include an appropriate tax strategy for your situation. This includes not only the amount of taxes you pay each year, but successfully planning a tax strategy for the future and your heirs.

Financial Planning

For more on this topic, see the separate section in the Resource Center by clicking here: Wills, Trusts & Estates


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