How to Create a Four-Part Financial Plan

Financial Advisor, Financial Independence, Financial Planning, Financial Security, Retirement, Saving

August 18, 2022

According to a recent survey by Northwestern Mutual, people who invest time in financial planning are happier than those who don’t. And they sleep better.

That doesn’t really surprise me. Without planning, you don’t really know if you are on track. And the stress of not feeling in control of your financial life can’t be compartmentalized. It affects us 24/7.

The survey also found that people who worked with a financial advisor were even happier and reported even higher levels of sleeping well. You know my take on this: Working with a financial pro is fine, but you must be actively engaged in all decision-making, as those decisions only affect the person staring back at you in the mirror (and those you love).

And you need to understand that you have all it takes to create and commit to a financial plan that will bring you and your family incredible peace of mind.

In fact, I think it might be helpful to break this down into four different plans.

Plan for how to get out of high-rate credit card debt.

There is never a great time to pay high interest rates, but with the Federal Reserve now raising its target rate, it is likely that credit card rates will increase as well.

If your credit score is high (above 720 or so) look for “best credit card balance transfer deals” online. Moving a high-rate balance to a new card that gives you a set period (a year or more) to pay down your balance with no interest is a great opportunity to pay down your debt.

I also want you to honestly review all your spending with an eye toward cutting out all “wants” so you have more money to put toward paying down your debt.

Plan for the unknown.

If there ever was a financial sleep aid, my vote goes for an emergency savings fund. My Ultimate Opportunity Savings Account at Alliant Credit Union remains one of the best deals around (read more about it below).

Plan for taking care of an older you.

Are you contributing as much as you can to your workplace retirement plan or IRA? If you are nearing 62 or so, have you begun to consider whether you might be able to delay starting Social Security? You will earn a much higher benefit if you wait until your full retirement age (between 66 and 67 depending on your birth year). Waiting until age 70 earns you the highest possible benefit. I also want you to start planning for how you will be able to cover having at-home care later in life since Medicare does not cover it. You can save more in your retirement accounts to prepare for this cost, or you can consider getting a long-term care insurance policy. LTCI can cover at-home care and can also be used to pay expenses if you one day move to managed care.

And there is no excuse for not having the essential documents that will make sure you are well taken care of later in life. The financial power of attorney is one of the MUST HAVE™ Documents that ensures whoever you appoint can step in and manage your finances if you ever become unable to handle things. A health care proxy (paired with your advance directive) is the person you appoint to advocate for your medical wishes if you are ever unable to communicate with your medical team.

Plan for passing on.

A will and a living revocable trust are the other Must Have Documents that will bring you peace of mind. With both of these in place, you will have made it as easy as possible for your assets and belongings to pass to the heirs you have laid out in those documents.

Suze Orman Blog and Podcast Episodes

Suze's Financial Strength Test

Answer Yes or No to the follow statements.

I pay all my credit card bills in full each month.

I have an eight-month emergency savings fund separate from my checking or other bank accounts.

The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!

I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.

I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.

I have term life insurance to provide protection to those who are dependent on my income.

I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.

I have checked all the beneficiaries of every investment account and insurance policy within the past year.

So how did you do?

If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.

As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!

But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.

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