By Kelly Reinhart
Financial planning is a term we hear all the
time and see as a service offering from banks,
insurance companies, accountants, financial
advisors and more. So how do you know what
you need? Most people don’t have financial
plans prepared because they just don’t know
where to start.
The simplest explanation of financial planning
is that a qualified financial advisor takes
what you own, what you make, what you owe,
how much you save and what your invested
in to provide a scorecard of where you stand
financially. They then create a model of your
future recommending how you can reach your
short-term and long-term financial goals.
The model considers things like education expenses, retirement lifestyle, retirement savings, life insurance needs, personal spending budgets and major life events to map out a successful accumulation of funds toward your retirement.
There are three things you should consider before investing in your financial plan: 1) How to choose a financial planner? 2) What does it cost? and 3) Who needs a financial plan?
Financial planning designations. There are so many designations in the financial services world that it can be tough to understand them all. The three designations that require the most rigorous training specifically on financial planning are the CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), and PFS (Personal Financial Specialist).
Many will offer financial planning without these designations or with another designation that may have financial planning as a part of their training but these three are considered the designation that are most specific to financial planning alone.
What is most important is that the advisor has knowledge beyond the software they use to do the work. The best method to decipher this is to determine what designations they have and what training they have undergone. Price for plans. If you have an insurance provider, bank, accountant and stock broker chances are three out of four of these provide financial planning. The price for a financial plan from these companies can range from free to two or three thousand dollars.
Many institutions provide simple financial planning for free to provide value to their clients. Free financial plans are not always bad but it will not typically be an in-depth plan and it might come with a sales pitch for more products, which is why it is offered for free.
Be careful with a plan that does not represent a complete plan. It can come to misleading conclusions. Most financial planners with the above designations charge a fee for their services but provide a complete financial plan. The fee typically means that you are getting an objective view and even though it may still come with a sales pitch, the service is not specifically tied to selling more products.
Complete financial planning is an in-depth look at your entire financial picture and includes collecting information on your entire financial life, not just one account. Investing in financial planning is a small price to pay relative to the benefit. To put it into perspective, if you make $100,000 a year and your financial plan costs $1,000, you are only investing 1 percent of your annual income to get a road map to the future.
Who needs it? As we all know, times have changed. Financial planning was traditionally a service provided for people nearing retirement or in retirement. That rule of thumb no longer exists with the burden of retirement shifting to employees and business owners more and more every day. We rely on our 401K’s to provide us our future but we don’t know anything about how it is invested and what it will do for us.
Financial planning is as much of an education in making smart financial choices as it is a road map or template to a successful future. In today’s economy everyone should be receiving some degree of financial planning. In particular, business owners and employees over the age of 35 should start to make financial planning as much of a priority as filing annual tax returns.
We are all going to be held accountable for our choices throughout our working years when we finally retire. It has never been more important to invest in your future then it is today. As our financial system in the US becomes more complex it is more important to find an objective financial planner that can lead you through the ups and down toward financial freedom.
Kelly Reinhart, CPA, is the managing partner of Reinhart & Associates, Reinhart Champlain Wealth Management and Reinhart Bookkeeping & Payroll and can be reached at Kelly@ reinhart-cpa.com or 306-4138.
Photo Courtesy of Reinhart & Associates