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Wealth Planning

Building a Strong Foundation for Your Financial Plan

April 15, 2020

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Financial planning is a long-term process, so it’s important to begin by building a strong foundation upon which the rest of your plan can grow. The foundation of your plan is designed to provide financial stability and protection.

Building a stable foundation

One of the very basic stabilization measures in financial planning is to be sure that you have an emergency reserve of cash that can cover three to six months of your living expenses. In the event that someone in your household loses his or her job, even temporarily, this reserve of cash can help maintain the budget and make liquidating assets from your investments unnecessary. Another liquidity option that may be worth considering is to use the equity in your home to obtain a reverse mortgage or home equity line of credit. Both options would provide you with cash when needed, with the opportunity to pay back the funds at some point in the future.

Working hand-in-hand with building an emergency cash reserve is having a good understanding of your actual living expenses. It’s important to establish a budget and then periodically review it to be sure you know exactly how much cash you should have on hand to meet those monthly expenses. Having a budget can also greatly improve the accuracy of your retirement plan projections so that you have an idea of how sustainable your spending goals will be during your retirement years.

Keep your documents updated

In addition to a budget review, it’s important to look at your estate planning documents—such as your will, durable power of attorney, health care proxy, and living will. If you become incapacitated, what will happen to your assets and who will step into your shoes to make your financial decisions? These documents can help ensure that your wishes are carried out as you intend, and they should be reviewed and updated at least every five years, or more often as life changes dictate. Events such as a marriage, divorce, birth, or death should trigger document reviews.

You should also conduct a periodic review of any life insurance policies you and your spouse own, particularly during times when the health of your family is a concern. Do you know how much life insurance you have, and is it adequate to protect your family in the event of a worst-case scenario? You should be certain the beneficiary designations on your policies—and on all of your accounts—are in keeping with your current situation, and make any updates as needed.

Please see important disclosures at the end of the article.

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