There’s a strategic element required for efficient financial planning. Imagine being outside of a barn on a hot Indiana day with a bale of hay. The bale is headed to the top rack in the barn and some would very well waltz right in and throw the hay to the top. Others might take in the entire picture. Does the hay need to get into the barn on a 100 degree day? Do we have a lift available? This may seem silly to a farm hand and simple to those unfamiliar with the brutal heat high in a barn loft but it illustrates that more than one issue needs to be considered to reach the best course of action.
Financial planning is a combination of wants, needs and available resources combined with a working knowledge in multiple areas. Retirement planning is about how much to save, where to save it and how to invest the money as it grows. Eventually, the far more difficult part arrives where it is time to take money out of the account.
The tax planning that should occur every year, for many, rarely occurs at all. In my 31 years of experience I find that people save where their employer allows and in the amount the government permits without ever addressing their own personal situation. We call it “silo investing,” where individuals look at one situation without regard to the rest of their options. Massive opportunities are overlooked due to unknown complexity.
How you invest the money – what we call the investment playbook – certainly needs to be addressed but specifically, in the context of the entire picture including taxation today and tomorrow. Different assets are taxed in different ways; capital gains, dividends and interest are all different types of income with various tax treatments. Is it a qualified dividend or non-qualified dividend? Is it a short-term or long-term capital gain or loss? Should your Roth IRA be invested more aggressively than your joint brokerage account? Many questions that require a multitude of answers before the right strategy can be suggested.
“Life happens” is the next category. These are the issues that happen irregularly to each family but almost inevitably at some time to all families. They are the good, the bad and the ugly and they can really derail the best of plans. Make sure you consider the possibility of a road bump when designing the strategy.
The legacy plan is the final consideration. Where do you want your assets to go when pass? How do you want to be cared for before you are gone? The more you can prepare upfront the easier for your family and the better for you.
You have to consider the entire picture not just the singular decision in financial planning. As a guide, we try to follow the Andy Stanly decision matrix: based on your past experiences, current circumstances and future hope and desires, what would it be wise for you to do right now?
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see our Disclosure page for the full disclaimer.