Analyzing a personal financial plan usually uncovers some financial planning gaps. These weaknesses in a financial plan can range from being under-insured to overspending relative to savings and investments.
The most challenging part of the financial planning process, is not identifying gaps, but making the life changes necessary to fix them. This is due to the fact that many of our budgets are rather fragile; meaning we do not have enough cushion to recover from a significant financial setback. There are three main parts to closing financial planning gaps: determining financial planning needs, adjusting budget to increase cash flow and using addition cash flow to strengthen the financial plan.
Determining Financial Planning Needs
Determining financial planning needs is only a matter of assessing your current financial situation and finding the strengths and weaknesses within it. Personally, I evaluate a financial plan based on its ability to get a client from where they are today to where they want to be while protecting assets from risks.
So review your current financial plan and determine if you can accomplish your goals and objectives while maintaining your current path. If its not realistically feasible that you can accomplish your goals, you should focus on fixing what you can.
Adjust Budget to Accommodate New Expenses
Once the financial planning gaps have been discovered, its time to determine how we can fund these needs. Normally, closing financial planning gaps involves the requirement to save and invest more money, purchase more insurance and one time expenses such as drafting a will for estate planning purposes.
The difficulty comes when determining where this additional cash is going to come from. In light of the fact that it is usually easier to control our expenses than our income, finding the cash needed to fund these goals is usually a matter of reducing current discretionary spending. Finding expenses to cut is a matter of creating a new budget and sticking to it.
Close Financial Planning Gaps
Once the new budget has been implemented, assuming it was needed to increase cash flow, its time to start closing the financial planning gaps. In this last step you will have to find the products and services needed to reduce the weaknesses in your financial plan.
In example you may need to determine which investments is best for your additional retirement contributions, what type of account to stash your additional savings or emergency fund. In addition you may need to find a good Estate Planner of Certified Public Accountant to work with. You may only have the opportunity to strengthen a few areas of your plan. So accomplish as much as you can as a little can go a long way.
Finding the cash to close financial planning gaps is not an easy task. Chances are you will have to make some sacrifices or trade offs in order to fully fund your financial planning needs. However, making the decision to strengthen your financial plan now, rather than later, is an sound investment in your future.