A viable Financial Action Plan should empower you to address these Seven following disciplines.
1 Comprehensive Financial Awareness sets the stage for successful financial outcomes. A comprehensive data-gathering process reveals the needed answers to determine where you currently are financially and where you need to be in the days ahead. Imagine your physician walking into your exam room and offering a diagnosis and prescribing a treatment without any form of examination. That would be ridiculous. I have met people who have accepted financial prescriptions without proper examination.
2 Estate Planning requires you to answer the following questions: What do I have? Where do I want it to go? How do I want my heirs to receive distributions, lump sum or on-going income? Who do I want to serve as my successor trustee, executor, POA power of attorney for financial matters and health care matters? Do I want to spare my heirs the hassle and expense of probate? If my beneficiaries were to predecease me, where would I want their share of the estate to go? Do I want to include my church or charity in the distribution of my assets?
3 Risk Management addresses these issues: How will my spouse and dependent heirs survive financially in the event of my premature death? Am I properly protected if faced with catastrophic illness, disability, long-term care, and property and casualty loss?
4 Cash Management looks at the challenge of maintaining a properly funded emergency fund. Do I have 3 to 6 months of my living expenses set aside as readily available resources, with checkbook access, for all of life’s little emergencies? Am I maintaining good records and receipts for accounting purposes?
5 Retirement Planning reveals the importance of having a nest egg that will fund my eventual "non-income earning" years. If I am still in my pre-retirement years, what target amount of money must be attained in order to maintain my current standard of living throughout retirement? How does that goal translates into a monthly accumulation amount that will fulfill the retirement goal. If I am in retirement, what distribution amount could I withdraw periodically without prematurely exhausting the principal throughout my lifetime? What rates of return will be required to accomplish all of this?
6 Tax Strategies can help you reap net benefits to your annual revenue, total net worth, and even gross estate distribution. What strategies could lower my current taxable income? Could I benefit from financial tools that generate tax deductions, tax deferred accumulation and tax free distributions? With the current complexity of the tax code, is my reluctance to hire a professional actually costing me more than I realize?
7 Asset Allocation is the selective placement of your investable resources into goal-focused investments. To assist you in your selections and tailor your investment vehicles around your objectives, your advisor should help you with certain questions. What is my risk tolerance, investment objectives and time horizon? Do I want to utilize an active management strategy that will move my funds into the market and then back to safer havens from time to time, or, do I want a traditional static buy and hold strategy? Since the market meltdowns in recent years, that approach is often referred to as "buy and hope." Since some major indices can be extremely volatile, maybe you should not only ask about the buy discipline of the plan but about the sell discipline as well.
Certain major transitional events in life, like kindergarten, college, graduation, marriage, having children, job transitions, and retirement, can often bring an acute awareness of how well we have planned. After one man retired and sat around the house a while, his wife said to me, "Help! My husband has just retired and doesn't know what to do with himself." She continued, "I just realized I now have twice the husband and half the money." Evidently, she was questioning the trade-off.
Now that you know the questions, we will begin the process of helping you find the answers to each of them. Getting one's financial house in order starts from wherever you are today. Create a plan and work your plan.