Financial Planning is the process of defining goals and objectives for you and your family while achieving them in the timeframe you prefer.
The "cost" of living in the United States makes it hard for many people to look past their current situation and into the future. With the turmoil's of the economy in relation to the sub prime lending market and the downfall of many major financial institutions taking focus off the present can be scary.
The importance of planning for your financial future is paramount and has a huge bearing on yourself but even more so your family's future. According to the Virginia Credit Union League, today's average 50 year old has only $2,300 saved toward retirement. Seeing that the experts suggest you have 70-80% of your income for retirement and average income in the U.S. is approximately $42,000, this group needs at least $30,000 more in savings for as long as they live after retirement. This is not an atypical representation of the state of savings in the U.S. Creating a financial plan is key to surviving the any stage of life.
There are many types of financial representatives serving different purposes. The descriptions of each type are below:
A person or organization employed by an individual or mutual fund to manage assets or provide investment advice.
An investment professional who helps individuals set and achieve their long-term financial goals, through investments, tax planning, asset allocation, risk management, retirement planning, and estate planning. The role of a financial planner is to find ways to increase the client's net worth and help the client accomplish all of his/her financial objectives.
Individual who is licensed by a state to sell insurance for one or more specific insurance companies.
An agent in the buying and selling of stocks and bonds
A CFP is a financial planner that has met the required experience and educational specifications of the Certified Financial Planner Board of Standards. Certified Financial Planners have also sworn to abide by the specified codes of ethics. They have also passed a national test which is administered by the CFP Board of Standards.
ChFC - A Chartered Financial Consultant is a title that is designated by the American College at Bryn Mawr. This is an institution of higher learning which is specifically sponsored by the insurance industry. The ChFC is the designation that the insurance industry bestows especially for financial planning. In order to become a ChFC there are experience requirements and an exam must be passed on designated subjects.
CLU - A Chartered Life Underwriter is also designated by the same institution as the ChFC but a CLU is an expert on insurance related matters. A CLU must also meet experience requirements and pass an exam on designated subjects.
CFA(Chartered Financial Analyst) - A CFA is a designation that is given by the Institute of Chartered Financial Analysts. It is awarded to financial analysts with experience who have passed exams in the subjects of economics, portfolio management, security analysis, financial accounting, and standards of conduct.
AICPA/PFP(American Institute of Certified Public Accountants / Personal Financial Planning Specialist) - Certified Public Accountants (CPA's) that are members of the AICPA and have the related experience in the field receive this title after they pass the financial planning exam given by the institute.
RIA(Registered Investment Advisor) - An RIA is a person who has registered with the Federal Securities and Exchange Commission as an investment advisor. An RIA does not have to possess any specialized financial training but they often do.
There are a couple of ways that financial representatives get compensated. Make sure you know the ways of compensation understanding how they affect the services you purchase.
There are essentially three types of commission payments:
The #1 in financial planning is the misconception that you have to have a lot of money to develop a financial plan. The reality is that you don't. Initially, you can start out building your own financial plan. After it gets to the point that you are unsure about some areas it's good to get financial representatives help. Not sure what type of representative best matches your situation? View our section above describing financial representatives and how they are compensated. We want you to be confident in the financial choices that you make and we are here to help.
Not true, investing even though it's very important is a small piece of financial planning. As listed above, there are four other areas of financial planning including taxes, insurance, retirement and estate planning. If you don't reduce your insurance and tax expenses to start saving the amount needed to fund your retirement, you won't have any investments to need advice about.
Beating the market is composed of knowledge and mainly luck. Stockbrokers make educated decisions on where to invest, when to pull out or buy more based on past market data. History tends not to directly repeat itself but past market data can give you or your stockbroker a good indication of what may happen.
Doing your research on the companies you invest in is most important. If your under the assumption that you can sit back and watch the profits your wrong, investing in the market takes determination, consistency and quickness to make adjustments based on market conditions and news. If investing in the stock market was something you could put on autopilot, even with professional help there would be more people like Warren Buffett (2nd richest man in the world, Berkshire Hathaway).
The market is a giant, efficient pricing system that instantly incorporates new information into stock prices. Since all known information and all expected future events are already reflected in stock prices, prices are fair. Very few unknown profit opportunities exist in the market due to the way it works and the competition out there trying to find new ways to profit. What causes prices to change is new, unexpected information reaching the market. Since no one can consistently predict the future, no one can consistently beat the market, unless they are lucky and repeatedly guess correctly.
Benjamin Franklin once said "the only thing certain in life is death and taxes". He was exactly right, if you are single with assets (home, investments, trusts) you will be taxed immediately upon death. If you are married, the tax can potentially be delayed until your surviving spouse dies. Other than your primary residence and the first $500,000 of capital gains on a small business, taxes will be due on all other property after both spouses die.
I have yet to meet a client who did not have inadequate limits, unnecessary coverage or inappropriate deductibles. Additionally, consumers are generally unaware of all the factors that need to be considered for each type of policy whether it is life insurance, disability insurance, critical illness insurance or car insurance.
According to the Employee Benefits Research Institute, 73% of Americans are unsure that they will have enough money for retirement. In order to be sure that you are saving enough for retirement, you have to develop a financial plan thoroughly outlining all of the major events you can see happening in your life and the amount of cash it will take to fund these. People often underestimate the amount of cash they will need because of the following reasons:
They believe they will be able to work until death They believe they will die before their money will run out Living under these assumptions are dangerous bets and tend to leave people struggling later in life. Additionally, with advancements in technology people are living longer and some doctors predict that people today may be able to live to 100. It is time to create a plan that will get you financially secure in retirement, whatever the outcome.
A will is a very powerful document and if valid, it will only cover your probate estate. Jointly owned property, retirement plans and life insurance proceeds are not covered by your will. Check with a an attorney and financial representative on how you can secure all of your assets transferring to who you want, when you want.
This is not necessarily true, many people thought that their family knew their wishes and after passing, many problems arose. A will and power of attorney are probably the most important documents you will ever write. By writing these documents and letting loved ones know that you have done so can ease the pain and confusion in the event of your death. If you die without a will, the state will decide how to distribute your estate. If you have children who are minors, the state government through the public trustee will decide who will raise them and care for them. Children might be taken into public custody until guardians are identified. This situation may occur if you become incapacitated and do not have a true power of attorney. You should be reminded that the wishes and directions that you place in your will do not have legal authority until you have died.
Social Security benefits on average cover only 40% of your average lifetime earnings. An example is below: John has worked for 30 years and his average salary for all 30 years of work is $75,000. When John retires, the government will pay him approximately $30,000 ($75,000 * .04). If John is accustomed to living comfortably on a $75,000 income he is going to need $45,000 ($75,000 - $30,000) in additional income to offset what is not covered by social security. Understanding that Social Security is only a supplement to your income after you are unable to work is key. Get financial advice from a professional who can help you determine what you need after retirement and the steps you need to take to get there now.
