To Plan or Not to Plan ... That is the Question

Take these nine steps toward building a comprehensive financial plan. Once in place, such a plan can be indispensable in making solid financial decisions going forward.

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When it comes to long-term financial planning, Americans are falling short. In fact, more than 80% of Americans fail to plan for their financial futures.

A comprehensive financial plan takes into account all aspects of your financial life, highlighting how one part — and even just one decision — can affect the others. Think of it as a money ecosystem with a “butterfly effect.” Such a plan illuminates your entire financial system, highlighting interactions and allowing you to make informed decisions.

The ABCs of a Comprehensive Financial Plan

Comprehensive financial plans are characterized by clarity and prioritization. One conundrum many people struggle with is funding conflicting goals that overlap. A great example is retirement and saving for a child’s college education. In this type of situation, questions that typically spring to mind include:

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  • How do you decide which goals to pursue?
  • How much savings do you allocate to each goal?
  • What savings time period is best for these savings goals?
  • When do you start?

When you develop a comprehensive plan, you spend time examining each of these goals to determine the proper priority within your personal life vision. This complete process helps you make more informed decisions about how to save and spend.

Create a Plan with This 9-Step Process

This nine-step process helps you gain control of your finances and build a solid foundation for your future.

1. Prioritize goals

Create realistic and specific goals that can drive the overall planning process. Divide your goals into three categories:

  • Short-term goals: One year or less. Example: Save for dental work.
  • Medium-term goals: Two to five years. Example: Save for a new car.
  • Long-term goals: Five years or longer. Example: Save for retirement.

2. Set smaller milestones

Break down the larger goals into bite-size pieces. Contributing to your employer’s 401(k) plan helps meet your goal to save for retirement. Increase your contribution by adding 1% a year over the next five years. For example, if you currently contribute 5% of your pay, next year contribute 6% and so on until you achieve an ongoing contribution of 10% a year. This action puts your overall retirement savings goal within easier reach.

3. Align your spending with your income and goals

If you are spending more than you make, it’s impossible to reach your financial goals. Check your cash flow. If it’s negative, look for expenses that you can trim so you can direct money into savings to meet your various goals. Cutting the cord, for example, could save you $100 a month in entertainment costs that you could be put toward a medium-term goal.

4. Manage risk

Review your insurance coverage. Make sure your home and car are adequately covered. If you don’t have life insurance, an inexpensive term policy will cover you and your spouse. An umbrella insurance policy could fill in any gaps within your other policies.

5. Navigate debt

Make a list of all your debts. Prioritize higher-interest debt, such as credit cards, over lower-interest debt, such as a home equity line of credit. Direct as much of your positive cash flow toward paying down higher-interest debt as possible. Once you pay one credit card down, move on to the debt that has the next highest interest rate.

6. Plan your estate

If you don’t have a will, that is your first priority in creating your estate plan. Visit an attorney or use an online planning tool. Just don’t leave your family unprotected. Once your will is taken care of, tackle other necessary estate planning tasks, such as a power of attorney, health care power of attorney, a living will and other necessary documents.

7. Know what you own

Take a look at your 401(k), IRA, college savings plans and any other investments you have to create a list of all your investments. Then, break down that list into types of investment: stocks, bonds and cash. This exercise tells you what you own today and how it is positioned in different types of investments so you can make adjustments based on current information in Steps 8 and 9.

8. Create an investment policy statement

An investment policy statement describes your goals and the strategies you plan to use to achieve them. It guides your actual investment decisions, helping you stick to a plan and avoid emotional decision-making. Include these elements:

  • Investing goals
  • Investing time horizon
  • Investment selection criteria
  • Investment strategy

9. Determine an asset allocation

An investment asset allocation divides your investments into different categories, such as stocks, bonds and cash. How do you determine what’s right for you? Of course, a financial adviser is always a good resource, but there are some online tools that can also get you started. Asset allocation tools, such as the ones offered by Bankrate and Morngingstar, take your risk tolerance, time horizon and assets into account to create a tailored asset allocation recommendation for your investments.

Use Your Plan as a Benchmark

Now that you’ve taken significant steps toward creating your own comprehensive financial plan, you can rely on it when you are faced with financial decisions. For example, if you get a raise, you can direct those funds into your 401(k), paying down debt or savings. If someone asks you to invest in a high-risk, unproven investment, consult your investment policy statement. If that type of investment doesn’t fall into the parameters you’ve created, you can turn it down with a clear conscience.

Amy Buttell contributed to this article.


This article was provided by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Lars Larsen, Investment Adviser Representative
President, Heritage Financial North

Since 2003, Lars Larsen has been committed to providing a personalized, caring approach with his clients, providing stability, promoting financial well-being and protecting their legacies. Born and raised in Denmark, a highly taxed country with a social safety net, he realized early on the concerns of so many Americans regarding their retirement income. This helped shape the focus and philosophy of Heritage Financial North. Advisory Services Offered Through CreativeOne Wealth, LLC a Registered Investment Advisor. Heritage Financial North, Heritage Financial North Insurance Services and CreativeOne Wealth, LLC are not affiliated. CA Insurance License # 0E02803 This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This information is not sponsored or endorsed by the Social Security Administration or any governmental agency.