Our current clients understand the value of regular financial planning and know the answer posed in the blog title is a resounding yes! Comprehensive financial planning is one of the pillars of our relationships. A financial plan is an ongoing process; your initial written document layouts your current state, goals, strategies to move towards those goals and strengthen your situation, and a timeline of how to implement the plan. From time to time, we will receive the question from children of clients or new prospective clients, when do I need a financial plan? Major life events reinforce the value of a financial plan, such as marriage, divorce, buying a home, expanding the family, etc. Just as important as the major life events are the more delicate events and timing in your life that can reinforce the importance of financial planning.
Open Enrollment
Many employers review their benefits with their employees this time of year. The process of reviewing and selecting your benefits for the upcoming year is called open enrollment. Once open enrollment begins, you usually have a short window to complete your benefit selections. Upcoming open enrollment is a perfect trigger to evaluate your need for a financial plan. Specifically, an upcoming open enrollment period is an appropriate time to connect with a CERTIFIED FINANCIAL PLANNER™ professional to review your benefit elections and check in to evaluate if you are on the right track overall. Remember, there are many types of advisors, and you must find the advisor that suits your needs. Our blog, ‘Finding The Right Financial Advisor Is In Your Best Interest‘, addresses what to look for in an advisor.
In addition to your typical benefit elections, employers sometimes change their retirement savings programs outside the open enrollment period. For instance, more and more employers are offering Roth 401(k) savings options; if a Roth savings option becomes available, it may or may not be advantageous to you based on your age, tax situation, and income. If an employer changes the retirement plan provider or what they are matching, this should be an alarm bell for you to check in on your financial plan.
Unexpected health crisis
Many major life events that trigger the necessity of a financial are not a surprise; you plan for them in advance, such as a marriage. A health crisis is one major life event you often have little control over. A family’s health crisis is a time to re-evaluate your financial plan or create one. Priorities may shift, assets may change dramatically due to unexpected expenses, and cash flow, employment, and estate planning may all be impacted by a health crisis. It’s a situation no one wants, but unfortunately, the reality is that we all know someone battling cancer. Families navigating a health crisis such as a cancer diagnosis, infertility, a stroke, or a significant accident may be forced to face their finances. A financial plan can help them make appropriate decisions. The other role a CERTIFIED FINANCIAL PLANNER™ professional should play during this time is coordinator to ensure you have all players in the loop, including an attorney, accountant, and insurance broker.
Changing priorities and philosophies
Sometimes we see a health crisis catalyst a change in a client’s priorities or, more broadly, their philosophy. A change in a priority can be a shift in the order of importance of your goals. For instance, you may have once pictured yourself working in some capacity until your 70s, but due to a shift, early retirement becomes a top priority. A change in your philosophy may be a new desire to align your investments with your political, religious, or other beliefs. Realizing there has been a shift in your priorities or your philosophy is another time that reinforces the importance of financial planning because your finances should reflect your outlook.
There are many ways to ensure that your financial plan and investment strategy reflects your philosophy. You could start by including a directive in your investment policy statement that you do not want any exposure to companies within the XYZ industry. Therefore companies within the XYZ industry will be screened out of your investment portfolio. You may even elect to invest in ETFs designed with a particular mission statement, such as green energy, to provide you broad exposure to many companies that align with your belief.
Another way to align your finances with your philosophy is to evaluate how you are giving. A financial plan can determine your charitable desires and the most impactful way to make a difference. For instance, we have worked with clients who historically gave directly to charities, but over time, their desire and ability to give increased, their tax situation changed, and we explored the suitability of a vehicle such as a donor-advised fund.
Leaving a legacy
The desire to gift may focus more on your family than on particular causes. Realizing your desire to provide a legacy to your family requires financial planning. There are many questions to address in these types of goals, who do you want to benefit, how do you want them to benefit, and what tax ramifications are you comfortable with, are all starting points to discuss. Trust and education planning often enter the conversation when we help clients plan their legacy. There are strategies to provide provisions within a trust to safeguard against future generations’ overspending and even to protect assets within a family tree in the event of a not-so-trustworthy spouse. For example, we dig into the use of a Dynasty Trust in our blog, ‘A dynasty trust is a powerful way to protect your wealth for (and from) your heirs.’ Planning your legacy is an example of the living aspect of financial planning; your plan must evolve with you and your goals.
Non-traditional income stream
Financial planning historically had challenges with wildly variable income streams such as side gigs. Side gig income has unique challenges, such as taxation and cash flow projections. Today, financial plans are much more agile in accounting for variable and one-time income. If you are considering a what-if scenario, that is a perfect time for financial planning. We can evaluate multiple strategies, but we need some starting point figures to work with in the analysis. The initial brainstorming phase is sometimes too early for a financial plan. In other words, once you have fleshed out your potential non-traditional income stream and have an idea of real income, we can consider ‘what-if’ scenarios to help you decide if a side gig aligns with your goals and the impact on your financial situation. Side gigs sometimes require additional expertise, such as an attorney, to draft contracts and help you establish a business entity. You may need additional insurance coverage to address new risks you are taking on in the side gig. Just as in a health crisis, your CERTIFIED FINANCIAL PLANNER™ professional should serve as a coordinator to help you have all your bases covered.
The major life events we see on lists across the internet as potential prompts to create or update your financial plan are a good starting point. Don’t miss an opportunity to fine-tune your finances during a less obvious, possibly more delicate, impactful time in your life. A CERTIFIED FINANCIAL PLANNER™ professional is a fiduciary. As CFP® professionals, we act in your best interest, and if it is not an appropriate time for you to tackle a financial plan, we will be transparent with you to guide you to tools that serve you and your needs.
