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The importance of basic building blocks of a solid financial plan

/, Lifestyle, Saving/The importance of basic building blocks of a solid financial plan

Last week I met prospective clients who were interested in discussing retirement strategies and various types of investments.  They told me that “now that things are getting back to normal, it’s time to start planning again”. Both were young professionals and had substantial savings. 

During an initial meeting I will review the overall financial situation and discuss goals both near- and long-term.  Part of this meeting also involves me asking about various insurance coverages and legal documents (I never give legal advice but I do always stress the importance of having an up-to-date Will, Health Care Proxy and Power of Attorney which reflects their current wishes).

Surprisingly, (or not) this young couple – who had a child – did not have life insurance and disability income insurance (and had never considered it), and they had not updated their will since the birth of their child.  I say “or not surprisingly” because so many times, I see an emphasis placed on “Retirement Savings” or “College Savings” – but not on the basic building blocks of a solid financial plan, without which the entire plan can come crashing down!

Retirement and investment plans are often based upon income(s) continuing through age 65 (or 67, or 70 – pick a number!).  Failing to plan for a disability (a potential interruption in income and savings) or even a death can derail the most carefully constructed plan.

Imagine becoming incapacitated and not being able to do basic banking transactions; now imagine that your partner cannot do them for you because they are not named on your account(s) and you have not given them Power of Attorney. How would they pay bills, buy groceries or do any of the daily financial tasks that we take for granted?

Also imagine that you’ve died with no insurance or instructions as to disposition of your estate, or as to who will care for your child.  If you don’t leave instructions then the courts may decide; this is both time consuming and expensive if there are people with differing opinions about how your assets should be divided.

These issues can all be resolved with some basic insurance planning and legal planning.  Have this conversation with your financial advisor, discuss various insurance coverages to see what is most appropriate for your situation; ask for a referral to a local attorney.   Take care of these basics to your satisfaction, and then continue the conversation about strategies for investments. 

And remember, a financial strategy is not static – it is always a work in progress that can change with your changing life circumstances.  Once in place it should be reviewed periodically to make sure that it is still addressing your needs.