Financial Planning

It is often said that you can’t know where you are going until you know where you’ve been…or at least are.  That holds true for financial planning too.  In order to develop and plan for your financial future, you must first establish where you are currently, which means conducting an assessment of your current financial situation.  How much do you earn?  How much do you save?  Do you have kids?  Are you planning on sending them to college?  Do you plan to retire from work someday?  If so, when?  All of these questions and more are the basis of any financial plan.  And, any financial plan starts with a financial needs analysis.  


Financial Needs Analysis

A financial needs analysis (FNA) is the basis of any financial plan.  It is your financial “road-map” to get you where you want to go, financially speaking.  It assesses your current financial situation verses your goals, and helps you develop a plan to get from here to there.  Financial plans can be very complex, especially for wealthy individuals with a lot of assets; but they don’t have to be.  A basic financial plan will ask three (3) basic questions:

  1. What happens to you/your loved ones in the event of your premature death?
  2. What happens to you/your loved ones in the event of a disability that prevents you from working/earning an income?
  3. What happens to you/your loved ones in the event that you “out-live” your retirement income?

In addition, for those with children and/or parents who are still alive, the FNA could also cover:

  1. Do you want/intend to send your kids to college?  If so, public or private?  How much will it cost?  How much do you need to save?
  2. What is the likelihood that your parents may need your help in the future, either financially or otherwise?
  3. Do you have a child/parent/sibling with special needs that you want to make sure is provided for in the event that they out-live you? 

Despite what many people think, wills and financial plans are not just for the wealthy.  Anybody with young children, a spouse or other family member that is dependent on you financially and for their well being should have a will and a financial plan.  Financial plans can be simple or complex, it just depends on your goals and the specifics of your situation.


Life Insurance

Life insurance is often misunderstood, even by some financial professionals.  The first thing to remember is that life insurance is not an investment.  Life insurance has one (1) simple goal: To create a pool of money upon the death of an individual to be used for certain/intended financial needs.  Those intended needs can be as varied as the number of people who buy it.  Often, it is used to:

  • Create a pool of money to replace a lost income due to the death of a “bread-winner” for families that depend on that income to live,

  • Create a pool of money for other special purposes, such as a “college fund”, or a gift to a special charity,

  • Create a pool of money to pay estate taxes, in the absence of the estate being liquid or having the cash available to pay the taxes.

Whatever the reason for it is, life insurance is most often the cheapest and fastest way to accumulate money for these purposes.


Whole Life Insurance

The oldest / traditional form of life insurance, “whole life” is designed to provide coverage for one’s entire or “whole” life, not just a specified period of time.  This form of life insurance develops “cash value”, which among other things allows the premiums to remain fixed and level throughout the entire period of time the policy is in-force.  Cash values, over time, accumulate and can also be used as an “emergency fund” or to supplement one’s retirement income.

Term Life Insurance

More or less the opposite of whole life, term life insurance is designed to be used to insure a life against a specific loss or need, but only for a specific period of time or “term”, such as 10-years, 15-years, etc.  It is usually the cheapest form of life insurance, from a premium (only) perspective, which is mostly due to the more limited nature of the risk to the insurance company, but also because the policy does not develop any “cash values”.

Universal Life Insurance

Developed in the 1970’s, Universal life attempts to take the best of both “whole” life and “term” life and blends them into a single policy.   The policy has a scheduled level premium like whole life, but unlike whole life is not guaranteed.  The policy uses a form of term life (internally) to cover the death benefit, with the difference in the cost for the insurance and the premiums paid going into a side account that earns current interest.  Unfortunately, the long-term track record for universal life has not been that good due to variables within the policy and the volatility of the economy and investment markets over the last 50 years.  That said, for individual over the age of 50, in the right circumstances, universal life can often be their best option. 

Survivorship Life Insurance

Designed primarily for estate planning purposes, survivorship life actually insures two lives under one policy, but does not pay any death benefit until the death of the second or last insured.