Creating a Financial Plan

Creating a Financial Plan

We support the concept of professional financial guidance. Why? Because financial professionals are trained to help you determine your long-term investment goals, time frames, your capacity and tolerance for risk, and the types of investments most appropriate to help you achieve your goals.

We suggest you choose a financial professional in much the same way you would choose any other professional. Rely on family and friends who have had positive experiences. If you get the names of several advisors, interview each of them. You’ll be making important, long-term financial decisions with their guidance, so you want to feel comfortable sharing personal information with them and be sure their approaches and areas of expertise are a good match for you.

Personal Goals

Your list of goals may include: saving for retirement, buying a house, starting a business, paying education costs for your children or charitable giving. But for each goal added to your list, you’ll need to precisely define its costs, time frame and priority. You’ll encounter a number of trade-offs as you start to prioritize and lay out a time line for your goals. Getting these details down on paper will allow you to work more successfully with your advisor to create a solid financial plan. And that can help you get to where you want to go.

What’s Your Time Frame?

When we talk about time frame, we mean the time between when you make an initial investment and when you’ll need the money.  

If your goal is paying college tuition for a 2-year-old child, you’ll need the money starting in about 16 years. If that child is 15, you’ll need the money starting in about three years. Every investment has its own time frame depending on the goal, and the time frame shrinks as the goal approaches. 

Why define your time frame? Successful investors make a point of defining the time frame for a goal before taking action. Because a clearly defined time frame helps when deciding which investment options are right for the goal. If the time frame is short, financial professionals generally recommend more stable, less volatile investments. With a longer time frame, some short-term volatility may be acceptable. 

Without a clearly defined time frame, choosing the appropriate portfolio of investments is a guessing game. And investing should be about making decisions that are right for your situation — not guessing. And remember, a goal that’s 15 years away will eventually be 10 years away, then five years away, and so on. 

A financial professional can help define the time frame for your goals, as well as suggest investments that are appropriate for them. And more importantly, an advisor can help you adjust your mix of investments as your time frames and life circumstances change.

Risk Capacity and Tolerance

Comfort with risk refers to how you feel about market volatility. Specifically, how will you respond when investment values decline unexpectedly? Will you fret over losses and sell your holdings to prevent further decline? Or can you remain calm and stay with your financial plan?

Capacity for risk is also an important factor. While you may have nerves of steel in the face of market volatility, that doesn’t necessarily mean you should take big risks. Your capacity for risk is defined by where you are in your life journey, along with your plans and goals. Risk capacity changes as you get married, change jobs, have children, or buy a house.

The right amount of risk in your investments can give you the confidence to stick with your financial plan even when the market takes an unexpected dip. But if you start feeling nervous or uncomfortable about your investments, be cautious about how you respond. A knee-jerk reaction can cause you to sell when prices are low, rather than hold onto an investment that has the potential to rebound and erase paper losses. 

Regularly checking in with your advisor can help you keep your financial plan in sync with all the changes in your life.

Put it in Writing

One of the best ways to improve your chances of reaching your personal goals is to put your financial plan in writing. A financial professional can be a big help when you’re trying to get all the details all down on paper.