Skip to main content

Sound Advice: August 12, 2020

"A goal without a plan is just a wish"
Antoine de Saint-Exupery

Planning for one's financial future is a straightforward exercise, but one in which the nuances can dramatically change the outcome.  When you start on the path ahead, you have the option to change direction as you move along toward your goal.  If you don't start, as is the case more often than not, you have no options other than struggling to deal with unforeseen consequences, which may well be less than desirable.

A financial plan has four main elements: what you own (your assets), what you owe (your debts), how much you are earning (your income), and how much you are spending (your expenses).  If your assets are greater than your debts and your income over time exceeds your expenses, assuming nothing untoward happens, you're probably in good shape.

But a plan is based upon assumptions that may or may not be on target.  Among these are the rate of inflation, the rate of investment returns, and the expected date of retirement, i.e., when earned income stops and the income flow is dependent upon investments, Social Security, and pensions, if any.

In the absence of problematical events, it's entirely possible that the path will be smooth.  Even so, things change and that's the rub.

If inflation rises substantially, but investment returns do not follow suit, you may have to withdraw from your assets, which may wither away slowly rather than rising.  Or if health issues arise and you are unable to continue working until the planned retirement age, that, too, will be disruptive.

Far worse would be a situation involving the need for long-term care, either at home or in a facility.  Should this occur, unplanned expenses could soar.  Many of us will need long-term care of some sort and it's likely that one out of three will require care at a nursing facility.  That's not a pleasant prospect, but it's one for which insurance is available.  Long-term care insurance, however, if available, is extremely costly.

When you have children, there's usually the matter of saving for their education.  For a baby born today, the four-year cost of a private university could easily be $500,000 when they're ready to attend.  At a public university, figure half that.

If one's plan includes leaving an inheritance for the generations to follow, there's all the more reason to make efforts to limit the need to draw down funds from your saved assets. 

Oh yes, and let's not forget about things like wills, powers of attorney, and health care proxies, all of which need to be take care of.

A financial plan is not about getting rich, and you don't have to be rich to create one.  It's about doing more with what you have.

And sleeping well at night.


N. Russell Wayne, CFP®

Comments

Post a Comment

Popular posts from this blog

Sound Advice: February 21, 2024

800-000-0000 That’s 800-000-0000 Again, 800-000-0000 That’s the typical closing for the hard sell commercials that are increasingly polluting media airwaves.   These are the commercials for products or services you rarely need or most definitely should avoid. A substantial number are on behalf of groups of attorneys who would have you believe that you and many others may be entitled to cash compensation for having used or being exposed to some evil item or substance some time in the last few decades.   The pitch always includes a comment that there’s no cost to you unless there is a settlement in your favor. Much of this is rubbish, but when the appeal suggests that there’s nothing to lose, why not take a shot.   And, as you would expect, “advisors” are standing by 24/7 to take your call and help get the process in motion.   What kind of advisor would be available at 3 a.m.? One version of this approach pops up every year between October 15 th and Decemb...
Post a Comment
Read more

Sound Advice: September 21, 2022

The Professional Approach To Stock Selection There are various approaches to stock selection, but the two that predominate are fundamental analysis and technical analysis.  Fundamental analysis is a numbers-based method that evaluates key factors such as income and financial health, including the past, present, and future.  Technical analysis emphasizes movements and formations of stock prices. Fundamental analysis is based on factors that over time have proved to have a meaningful impact on stock price movements.  The optimal picture of corporate profitability is steady growth, both in the past and, prospectively, in the coming years.  Steady growth is rewarded by higher valuations of underlying earning power than those accorded companies with erratic progress. When professionals screen (filter) the data of the broad universe of stocks, they look for companies that move ahead every year, regardless of the prevailing economic conditions.  Although high pas...
Post a Comment
Read more

Sound Advice: July 26, 2023

Is Day Trading a Good Idea? Day trading can be both exciting and potentially profitable, but it also comes with significant risks and challenges. Whether it's a good idea depends on several factors, including your financial situation, risk tolerance, time commitment, and knowledge of the markets. Here are some considerations to keep in mind: Risk and volatility: Day trading involves buying and selling securities within a short time frame, often within the same day. This exposes you to the inherent volatility and risks of the market. Prices can fluctuate rapidly, and unexpected events can have a significant impact on stock prices, making it challenging to consistently make profits. Time commitment: Day trading requires a substantial time commitment. It involves closely monitoring market movements, conducting research, and executing trades. It can be stressful and demanding, as you need to be actively engaged in the market during t...
Post a Comment
Read more