Financial Planning Needs Analysis

Once all of the financial planning data has been collected and financial statements created, its time to determine your financial planning needs. There are a few different names to this part of the process including “gap analysis” and “SWOT analysis”.

Regardless of what you wish to call it, the outcome is still determining where your current financial plan is strong and weak. The strengths and weaknesses of a financial plan are measured relative to general and specific financial goals and objectives. In other words, this is the step in the planning process when you determine the gaps between where you are and where you want to be.

Financial Planning Gap Analysis

The first step in determining your financial planning needs is to quantify your goals and objectives. This includes calculating how much money you will need to save before you retire, determining how much insurance you need, evaluating your investments and estate planning needs. Each one of these financial planning elements are complex on their own, let alone analyzed together. However the following highlights will help you with the most common financial planning gaps.

Budget Analysis

Cash Flows - When reviewing your budget measure the margin between your income and expenses. If you are spending almost as much as you make that’s a signal that your budget needs a little work.

Consumer Debt - One of the most common issues found during the budget assessment is discovering a trend of high consumer debt expenditures. This is a weakness that can have a negative impact on your long-term financial health.

Insurance and Risk Management

Life and Disability Insurance - Ensure that you have enough life insurance coverage to provide for your family’s expenses in case there is a loss of income due to injury or passing.

Home Owners Insurance - Most of us have a lot of capital tied up in our homes, in addition it is where we live. Its important to protect this important asset. Ensure that your Home Owners policy covers the replacement value of your home.

Investment Analysis

Diversification - When reviewing your investments, ensure that you are well diversified. This entails holding a variety of assets which could include a mix of stocks, bonds, options, futures, etc. Remember all assets classes might not be the right fit for you; invest in only the assets that you understand.

Risk to Reward - As our lives mature and we get closer to retirement, we cannot risk as much as we could when we were young. Ensure that you increase your allocation of low risk assets (such as bonds) the older you get.

Retirement Gaps

Retirement Income - Once you have calculated how much money you will need to retire, determine if your current savings and investment strategy gets you there. If not you may need to reduce expenses in order to increase savings.

Lifestyle Assumptions - If there are any potential retirement gaps in your financial plan your lifestyle goals may need a little adjustment. This includes changing your expected retirement date, travel plans or other funding objectives.

Estate Planning Needs

Updated Will - Estate planning is often overlooked as part of the financial planning process. At the bare minimum, ensure that you have an updated will to reduce the probability that your assets will get tied up in probate.

Power of Attorney - Laws, as they are currently written, leaves much to chance in the event that one loses the ability to make decisions on their own. Granting the legal authority for someone to make decisions on your behalf can ensure that your intentions will be carried out in the event that anything happens to you.

Determining the gaps within your current financial plan is the most complex portion of the financial planning process. Explaining how to complete a comprehensive review is too much for one post, however I will post more later. If you have any questions, don't hesitate to ask.