3 Financial Planning Steps


Organization, efficiency and discipline are the three primary steps of financial planning. Organization is knowing where your money comes and goes. An efficient portfolio means a better chance of profits, and discipline keeps you on the right track.

Statistics tell us that the average credit card debt per person - including all people who pay off their cards each month - is over $5,500. Folks don’t have a handle on the big picture of their personal financial world. If you are one of these folks, you should understand three important steps of financial planning and get started today, either on your own, using resources on the Internet, or by hiring a financial planner.

1. Organization

The first and most important step of financial planning is organization. You can be a lot closer to your financial goals in life by organizing your finances and understanding money flows, both inflows (like your paycheck) and outflows (bills).

If your financial life isn’t terribly complicated, an Excel spreadsheet may suit your needs perfectly. However, using something a little more sophisticated, such as Mint, Quicken or other online budgeting tools may become necessary, as you and your financial life continue to evolve.

There are a million ways to approach organization, but the “how?” is nowhere near as important as “when?” Of course, the answer to when to start organizing is now.

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Retirement Financial Planning - Your New Job and 401(k)

Pay attention to the details

Land a great new job? Awesome. Now is the perfect time to think about your 401(k) and retirement plan, whether you had one before or not. Saving for retirement is important at all ages, so don’t let this opportunity fall to the bottom of your list.

Here are tips to consider when starting a new job and a new 401(k).

Make more contributions if you have a bigger paycheck. When you get a raise, it is a good idea to increase the amount you contribute to your 401(k). You didn’t have this money in your pocket, so you won’t miss it when you put it straight into your 401(k).The contribution limit for 2017 is $18,000. If you already meet the limit, let’s talk about whether you should consider contributing to an individual retirement account (IRA) for even more retirement savings.Don’t pass up the new employer’s match. Sometimes, employers provide a 401(k) match as part of their employee benefits package. They may match your contribution dollar for dollar or a percentage of it up to a set amount.Your company match is free money. Don’t let it slip through your fingers. If I offered you a bundle of cash – say, a few thousand dollars, perhaps – would you turn it down? Find out the limit and at the bare minimum, contribute that amount.Name your beneficiaries for your new 401(k) plan. Keep your beneficiaries consistent across all retirement accounts and according to your estate plan. So be sure to update your new plan to reflect changes in your beneficiaries.Are you now a parent or do you have a new spouse? Updates allow your 401(k) account to pass directly to the person of your choice should you pass away.Above all, don’t forget to enroll in your new plan. While this may seem obvious, it’s easy to forget signing up for your new company’s 401(k) plan, because many employers require a short waiting period before new employees are eligible to join. If you have to wait, put a reminder in place – circle the enrollment date on your calendar and set an alarm on your smartphone. Just don’t forget.Your “Old” 401(k)

Wondering what you should do with your old 401(k) accounts? You may prefer to roll your old 401(k) over to an IRA, as it gives you the ability to invest your account in a variety of mutual funds, stocks or bonds beyond what your employer may offer. This helps you to build a well-diversified investment allocation. Choosing low-cost mutual funds or ETFs in an IRA can save you money in the long-term over generally more expensive 401(k) investment fees.

For easier management, some may consider consolidating an old 401(k) account with a new one. First, you need to research what investment options your new plan offers. It is common that employer-offered 401(k)s have a smaller number of investment options than an IRA. For example, emerging markets equity funds and small-capitalization value funds are rarely offered.

Then you should compare the underlying fees and expenses in your plan with those in an IRA. The operating expense ratios of the available options can often be higher. Finally, talk to your new 401(k) plan administrator to guide you through the steps for a rollover.

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Questions to Ask a Prospective Financial Advisor

What to look for and what’s not important

If you are shopping for a financial advisor, you need a good checklist of questions to ask. What you are looking for is someone who handles clients like you – and who is financially wise. 

As you assess an advisor who manages your assets, for instance, do yourself a favor: Don’t rely on his or her investment record. Clients have differing needs. A money manager whose investment performance touched the stars last year may falter this year. 

More important nowadays is how skillful an advisor is at preserving your assets. That may range beyond market forecasts into such realms as insurance. Losing the ability to work and generate income, because of a sudden disability, can be more ruinous to your financial well-being than a slide in the stock market. This list of questions to a prospective advisor will help you decide whether the person is the right fit for you: 

What Don’t You Do?

Some advisors are strictly asset managers. They run your portfolio and do no planning. Others are wealth managers and theirmandate is broader: They plan the risk in your life. Within these categories are specialists in such areas as insurance and estate planning. You may hire an advisor to draw up an investment plan aimed at gathering enough assets to see you through retirement. But the advisor may know zilch about creating a trust to pass along wealth to your grandkids. So, you will need another expert for that. 

Who Is Your Typical Client?

Let’s say you are starting out and have a net worth of $50,000. It may not make sense for you to hire an advisor who typically handles multi-millionaires. 

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