Financial Planning

Mapping Your Future
Ronald W. Rogé, MS, CFP®

I was looking at some very old maps the other day when it occurred to me that to make a map of an uncharted territory required not only a lot of time and effort but also involved enduring considerable risk. But the idea was to produce a reliable map that would provide useful guidance to those who followed, making their journey safer, better informed and more efficient.

Surveying and mapmaking have many similarities to financial planning. Like those early explorers, a financial advisor can map out the various features of your financial landscape and help gauge your exposure to risk. Creating that map is the beginning of a journey to realizing your ideal future through sound financial planning.

Along the way you’ll likely encounter unexpected or unforeseen situations. A good financial planning advisor acts much like a scout, helping you to interpret change and recommending constructive responses. You and your advisor then work together to revise your financial road map accordingly to get back on the right path to your future journey.

You see, good financial advisors are a lot like the explorers Lewis and Clark. They have surveyed what is for most people uncharted territory and become familiar with the risks and obstacles that could beset an unsuspecting traveler. That experience also allows your advisor to offer calm and considered guidance in times of uncertainty.

We have all heard that life is a journey and not a destination! So start laying the groundwork today to attain your financial planning objectives tomorrow and increase the probability that you will live the life’s journey you want.

Major Areas of Financial Planning:

• Retirement Planning- Will you be financially secure during your retirement?
  You can increase the chances that the answer will be yes by careful retirement planning. Setting up a retirement planning strategy should be a top priority. More than ever, it's up to you to achieve your wealth goals. Speak to a qualified financial planner about the best way to build your nest egg and to learn which investment options make the most sense for you. Click here to learn more about how we can help you plan for your retirement.
• Estate Planning- Why do I need an Estate Plan?
  Estate planning is the process of accumulating and disposing of an estate to maximize the goals of the estate owner. The various goals of estate planning include making sure the greatest amount of the estate passes to the estate owner's intended beneficiaries, often including paying the least amount of taxes and avoiding or minimizing probate court involvement. To learn the ins and outs of estate planning, click here.
• Risk Management- What things should I insure?
  
  How's your health? Could you afford to lose it? If you become sick or disabled, temporarily or permanently, would you be able to support yourself? For most people, the answer is "no," yet a large number of people -- even some with quality health insurance -- are not insured for disability.
  
  How about your life? If you were to die suddenly, what kind of financial hardship would result? Would there be dependents left without basic support? Would your burial costs impose undue hardship on others? Morbid as they are, these questions are at the root of life insurance decisions. If there are people who can't afford to lose you, you should buy life insurance.
  
  Sometimes, you buy insurance to protect lending institutions. If you have a home mortgage or a vehicle loan, you have little choice. The lending institution will force you to get insurance and will dictate the coverage levels. In this case, it's not your financial hardship that lenders are nervous about; it's their own.
  
  In the same way, private mortgage insurance (PMI) protects the lender, not you, should you default and stick them with a house worth less than the balance of your debt.
  
  What if you own a car, home, or other personal possessions outright? Start by thinking about which of these are the most valuable. If these valuables were damaged or lost by accident or theft, would this lead to severe financial hardship? If so, you should purchase enough insurance to replace them. Most homeowner's policies cover the loss of personal possessions. Auto comprehensive and collision insurance covers the loss of your transportation.
  
  The most complicated topic among these is liability insurance. You buy this to protect yourself from others. If your negligence or error should lead to damage of their property or, worse, their health, you should be prepared to cover these costs in case you are sued. Such liability coverage usually comes with your car and home or renter's insurance. So-called "umbrella policies" are also available for more general liability. Coverage limits, in these cases, are usually based on your net worth.
• Educational Funding- With the rising costs of college…how will I pay for it?
  
  Two Common Products
  
  Coverdell ESA: Distributions are tax-free. So are distributions from a 529 plan -- until 2011. It's likely that Congress will extend the tax-free treatment of distributions, but it's not a sure thing. You choose the investments. You can invest in the stocks, bonds, mutual funds, or just plain old cash. With a 529 plan, you must choose a money manager. On top of that, since most 529 plans are relatively new, these accounts have short histories, making it difficult to evaluate their quality.
  • Funds in a Coverdell ESA can also be used for eligible primary- and secondary-education expenses.
    
    529 Savings Plan: The control over the funds in the 529 will always reside with the contributor. This is not true with a Coverdell ESA, since it is a custodian account. Assets in a Coverdell ESA become the property of the beneficiary at age 18, and he or she can use the money for a diploma or at Williams-Sonoma. The contribution limits to 529 plans are significantly higher. Assets in a Coverdell ESA are considered property of the student, which can reduce the student's financial-aid package. On the other hand, the assets in a 529 savings plan belong to the account owner.
  • Your state may offer a tax deduction for contributions to the local 529 plan. (Curious if your state does? Check out the State Tax Treatment of Qualified State Tuition Programs chart from the College Savings Plans Network website.) Also, some states offer other perks, such as scholarships and matching contributions.
• Cash Flow Projections (Income and Expense)-Do you know how much you are saving vs. spending?
  
  Knowing your income and expenditures is very important. You want to be sure you are not spending more than you are receiving in income. As a matter of fact you should have surplus income that will be used for savings to fund future goals such as retirement, the children's college education and any other goals you may have. Click here to download our Income and Expenditure Worksheet.