Does a financial plan begin with creation or does a plan evolve? There are creationists in the profession, but few who can really do it. Plans evolve. In the beginning plans are neither complete nor unchangeable. There is a procedural approach.
Know the general idea is to convert the value of your career into money that will support lifestyle when your career is over. Along the way, you must deal with buying a home, debt control, education of children, opportunities and risks. Eventually it will be an estate issue. There are both good and weak ways to handle the process and you don’t have to right at the beginning.
An important observation is how time impacts the plan. Some parts, like retirement income planning and education planning, can change many times over the accumulation phase. The need is always there, but you can correct as you go. Evolve a solution. You can start these knowing much less than everything.
Investment is the tool to accumulate money. It is a time machine that transfers money from today to the future. Ideally the money grows on the way. Everything else about investment is detail. You can learn those details as required. Your job is to decide the shape of the outcome and then build a way to get there. The shape will be constant, but the way will be highly variable. You will adjust as you go.
Debt management is a crucial early step. For many people there will be a question, “Should I reduce debt or save?” The answer is personal. Some people hate debt and will give up growth to get rid of it. Others find ways to structure debt to support their investment and accumulation goals. Generally, paying down debt whose interest is non-deductible for taxes is a sound step. Again, you could change your mind as circumstances change.
If you have a clearish vision of what you are trying to accomplish, you can get there over a long time. The vision will become more clear as you acquire experience with your own strengths and weaknesses. Tools and techniques help.
Keep in mind, no perfect plan implements, because it is never perfect enough. Don’t get caught up in that circle.
There is one aspect of planning that must precede debt management and development of savings goals. What if you can’t convert your career into money? What if you become disabled or die? The fuel for your plan disappears.
It is a risk thing. It might not happen, but if it does your plan is dust. If you cannot afford the catastrophe, you must insure it. Don’t make the argument that 90% or more of 30-year-olds live to retire. It is a false argument. It is true for the entire population, but that says nothing about you in particular. You cannot be 90% alive. You will be 100% alive or 0% alive. Do not take the chance on the 0% part. Insurance is cheap in the beginning when you need a great deal to replace income. You can evolve better insurance plans later when you can afford it more easily.
Don’t forget wills and powers of attorney.
If you get an investment plan a little wrong, you can fix it. The first step must be to make sure you will need an investment plan. Control your ability to convert income to money. Insure your career, the most valuable asset you have.
If the short run doesn’t work, the long run doesn’t matter.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772