Take Control: Financial Planning 101

Written by Emily Butcher

As the economic “recovery” slowly limps along, many young professionals too often find themselves managing their finances haphazardly – if at all. A deliberate, clearly-outlined financial plan lays the foundation for taking control of your spending and ultimately, your future security.

“Creating a financial plan will give you meaning and direction in your financial choices, which will give you insight and visibility into the impact your current choices have on your future,” says Brittany Benassi, Trust Administrator with AAFMAA Wealth Management & Trust.

Seek the Help of a Professional

Don’t know where to begin? Enlisting the help of an expert can make the endeavor as painless as possible.

A Certified Financial Planner is recommended to best offer knowledgeable direction and Benassi says, “A comprehensive financial plan should include a long and short-term plan that includes estate planning, insurance analysis, education funding, retirement planning, and cash/flow debt management.”

The clincher, she says, is that “the real value in a financial plan lies in the implementation and monitoring of the decisions you make – otherwise, the plan will be nothing more than a large file gathering dust.”

Taking Charge of Investments

“Anyone can manage their investment portfolio if they have the time, knowledge and discipline to do so,” says President of AAFMAA, Rick Convy. “The hardest investment skill to develop and maintain is discipline. Humans are hard wired to make decisions that are exactly opposite of correct investment choices. They follow the herd, have hindsight bias, and have a myopic aversion to loss. They focus on the short-term, overreact to market movements, invest in what is familiar, buy when the market is high and sell when the market is low.”

When it comes to determining how to allocate your portfolio, consider time horizon, liquidity needs and risk tolerance. Convy adds, “Be honest with yourself; many investors will say they have a high tolerance for risk when the market is high and things are going well. Their risk tolerance vanishes when the inevitable down market cycle comes along. If you can’t take the heat, don’t go in the kitchen. The lower your risk tolerance, the lower your allocation to volatile asset classes should be.”

To ensure long-term investment success, rebalancing is a critical component, Convy says, and “that is where discipline comes in to play.” Lacking in adequate time, knowledge and the all-important trait of discipline? He concludes, “It is well worth the cost to have a professional handle it.”

Security For Your Future

“For many, retirement planning is a peripheral concern. It should be just the opposite,” says Benassi. “Life expectancies are increasing along with medical and living expenses. These factors increase the risk that many will outlive their assets.  It is never too early to start saving for retirement and creating a plan for your future.”

Additionally, consider a trust, even if you wouldn’t have previously considered one. “Trusts are not just for the wealthy – they are a tool that can be used by many regardless of total assets,” says Benassi.“There are several other benefits to using a trust, including helping to clearly distinguish lines of inheritance, provide for children with special needs, help family members with spending concerns, protect assets from creditors, and donating to charity.”  

The first step towards taking control of your finances is giving it the time and attention it deserves, rather than remaining on the back burner as long as your bank account isn’t in the red. Even if you’ve evolved past the living-paycheck-to-paycheck stage, now is the time to make managing your money a priority.

On a parting note, Benassi says, “A financial plan provides a foundation for your future financial well-being and the sooner you define where you want to be, the sooner you can plan on how to get there.”