While managing investments is part of financial planning, it is far from the only thing you need to be thinking about. Factors such as risk management through insurance, optimizing your employee benefits and minimizing your taxes also come in to play, as do retirement planning, estate planning and debt management, says Norman M. Boone, founder and president of Mosaic Financial Partners Inc.
“Too often, people put all of their efforts into their investments when they should be spending more time on other parts of their financial picture,” he says.
Smart Business spoke with Boone about how financial planning goes far beyond investments, what you need to be thinking about in your approach and how an experienced adviser can help you meet your goals.
How does retirement planning factor in to the big picture of financial planning?
The biggest question many people have is whether they have enough money to retire, and, if not, what sum do they need and what steps can they take to get there. To help answer those questions, your adviser should collect your balance sheet information (which is a list of everything you own and everything you owe) and your personal income statement (how much you make and where it comes from, your taxes, the payments to your retirement and savings accounts, your regular payments and everything else you spend money on). You’ll also need to inform your adviser about any expectations you have for inheritances or future income sources as well as changes you expect in the future in your income or expenses. Your adviser needs to know as much about your money as possible.
To assess how much money is enough to support your lifestyle for your remaining years, a good adviser will then make an attempt to project your cash inflows and outflows for every year for as long as you might live. This projection will tell you if your plans will work (i.e., you won’t run out of money before you die). If not, you should test various assumptions to determine what you need to do differently in order to get it to work: stay employed longer, save more money, spend less in retirement, or get more aggressive with your investments to help boost returns.
Knowledge is empowering. With your financial projections and knowing what you need to do to make things work, you can confidently modify how you do things so that you can achieve your retirement goal.
How important is estate and philanthropic planning?
You don’t have to be rich to need an estate plan. Documenting your wishes can be one of the most loving acts you can do, because, without guidance, your loved ones will have to pick up the pieces, which very often leads to arguments, hurt feelings and worse. Whatever level of your wealth, having a will or trust will provide important guidance that your family members want from you about your assets. You also will need powers of attorney for health care and for financial matters, so that if you are incapacitated, people you trust can make decisions within the parameters you set. For most parents, the first criterion after providing for the spouse is deciding how much is enough for the kids upon your death. Beyond that, it is possible for many of us to do important good for our communities and the causes we believe in, both by giving while we are alive and by leaving a portion of our estate to charity after death. There are planned giving techniques that have specific tax aspects that bring benefits to the donor, to the charity and often to the family.
What is the role of savings, budgeting, cash flow management and debt management in financial planning?
Usually, the biggest factor under your control as to whether or not your retirement plans will work is your level of spending. You can’t control the markets and most people don’t have much control over their income. But, you are fully in charge of how you spend your money.
On the surface, how much you save is determined by how much of your income you spend. Instead of waiting to find out how much is left, good savers decide up front how much they want to save and automatically put it away before they start spending.
With debt management, the more debt you take on, the less flexibility you will have to make choices in the future. Under the right circumstances, using debt can be very beneficial, but borrowing too much or borrowing in the wrong way or for the wrong purpose can ruin a person’s life.
An adviser can help you think through these issues, based on what you want in the future, and help you implement good practices so you can be more in control of your finances, and your life.
What should people look for in a financial adviser?
When you are seeking a new adviser or have an existing one, you have a right to know about things that affect you — for example how much he or she will be paid if you buy a product that is being recommended. I believe clients are best served by advisers who are independent and thus avoid the conflicts of interest inherent when they have products to sell while at the same time offering advice. Do not hesitate to ask hard questions for your own information, but also as a test to assess whether the kinds of answers you get are ones with which you feel comfortable. The openness with which questions are answered can be key to ongoing trust.
You want an adviser experienced in your kinds of financial challenges and opportunities. Just because they’ve been around for a while doesn’t make them good at what you need. Relevant experience, education and training are critical.
Finally, and perhaps most importantly, you want an adviser who listens well. You are going to be talking about some very personal issues; you want them to pay attention, absorb it and learn from what you are telling them. They have to understand you before they can determine what the best advice is for you.
Norman M. Boone is founder and president of Mosaic Financial Partners Inc. Reach him at (415) 788-1951 or [email protected].
