Elements of a Financial Plan - Part 2

In part one of this series (Elements of a Financial Plan - Part 1) I illustrated the importance of having a comprehensive plan. A good financial plan will attempt to “cover all of the bases” and not leave your financial future to chance or risk. In this post I will go over the importance of tax, retirement and estate planning.

Each and every financial planning element is contingent on one another, however some more than others. In example of how critical these elements are take retirement planning for instance. The success of a retirement plan depends on the right savings levels, portfolio allocation and risk management. Ignoring a element of a comprehensive financial plan could have a severe impact on your ability to reach your goals.

Tax Planning

As I mentioned in part one, tax planning is a fun one! Despite my lack of enthusiasm for tax planning and analysis, if it’s done correctly it can save a client and their family a lot of money. A comprehensive financial plan should consider income, property, transaction and estate taxes.

Due to the complexity of our tax code there is no doubt that many of us miss opportunities to save money every year. A comprehensive financial plan should anticipate when taxes will have to be paid and utilize knowledge of the tax laws to reduce the impact on a client’s bottom line.

Retirement Planning

If there is one part of a financial plan that is most contingent on the other elements is the retirement plan. Retirement plans are affected by your financial situation, savings and investment rate, the performance of the capital markets, the economy and risk management effectiveness to name a few.

If retirement planning recommendations such as, increasing savings, reducing unnecessary spending or creating a portfolio with the proper allocation your desired standard of living during retirement might become unattainable. This is why it is so important to start a retirement plan early and maintain the discipline needed to properly carry it out.

Estate Planning

The last financial planning element, and probably the least known, is estate planning. During life we usually accumulate various assets. These assets can include cash, real estate, investments and art to name a few. Upon passing, the laws of the State will govern the distribution of assets in the absence of the proper estate planning documents. These documents includes wills, trusts, powers of attorney and other legal instruments.

Estate planning seeks to reduce the confusion of distributing assets upon the passing of a loved one. In addition it also aims to minimize any taxes that could be levied on the estate. A comprehensive financial plan should continually revise the estate plan in order to remain relevant.

I hope this article helps you understand the comprehensive financial plan elements; tax, retirement and estate planning. In order to obtain your life’s goals be sure that you cover all of the bases. Overlooking a aspect of the financial process could impact your ability to maintain your desired standard of living.