Building a Financial Plan That’s in Sync with Your Life

Cambridge Trust

July 26, 2018

Financial Planning

At any turning point in your life—getting married, welcoming a new child, starting a new job, going through a divorce, beginning retirement, or receiving an inheritance—a financial plan can be a great resource and guide. It can help you examine and re-define your current goals and give you a map toward the future. 

Because your life is far different than anyone else’s (even your spouse!), your financial plan will be very different too as it evolves over time to keep up with your unique circumstances. There is no “one size fits all” approach and once you create it, you’ll need to update your plan regularly as your life and finances change. 


What a good financial plan will cover.

The main components of a financial plan include tax, retirement, insurance, estate planning, and investment management. A properly drafted financial plan encompasses all of your financial objectives and answers such questions as:

  • Can I maximize my 401(k) contributions? 
  • How can I save for my children’s college tuition? 
  • Should I have a trust? 
  • When should I retire? 
  • Should I pay down my mortgage?
  • Am I financially prepared for the unexpected?


A comprehensive financial also uses assessments such as cash flow analyses, asset allocation strategies, and so-called “Monte Carlo” computer simulations to help you make decisions about your financial and investment portfolios.  

Monte Carlo simulations, for example, show the possible outcomes of your investment decisions based on a set of assumptions and risk factors. The program runs through literally thousands of potential market scenarios, using a variety of variables for inflation, volatility, and other parameters. The results can help you and your planner decide on the appropriate asset mix for the level of risk you’re willing to take with your investments. 

Your financial planner can also help you implement investment recommendations to achieve your desired asset allocation, monitor your portfolio’s performance on a regular basis, and update your investments and your plan when specific needs arise or changes occur in the financial markets or the economy. 


How a financial planner helps you get started.

Although the final decisions about how you want to pursue your financial goals are always up to you, a “second opinion” from a trusted, experienced financial professional can be beneficial. That’s why, before creating or changing your financial plan, it’s critically important to:

  • define the goals of your plan, and  
  • establish a strong client-planner relationship.

Once you have completed both of those steps, you will need to gather all of the information your financial planner needs to carefully analyze and evaluate your current financial situation, and make recommendations for the future. 


Why choose a CFP®?

While every Certified Financial Planner must meet the same high standards, CFP®s often specialize in a particular discipline or niche. Some focus on investments, while others may concentrate on retirement planning, or life insurance and annuities. If you have a specific need in mind, it’s important to find a CFP® who is experienced in that financial discipline.

This designation is given to individuals who have completed a rigorous series of educational requirements at an accredited university and passed a comprehensive exam. The certification also requires adherence to a Code of Ethics and the accumulation of continuing education credits to maintain the designation, so every CFP® stays current with recent developments and trends in the financial planning field.

In the ever-changing world of new tax laws, estate planning techniques, and retirement savings options, it’s often desirable to get a second opinion from a reliable source. So how do you know that the financial planner you choose will be the skilled, experienced, and trusted guide that you need to help you develop and implement your financial plan? Simply look for the Certified Financial Planner designation.

It is also crucial to have a discussion with your financial planner about the cost of developing your financial plan, other services offered, and how he or she is compensated for working with you. Your CFP® may charge a flat fee, an hourly rate, or a percentage of assets under management. In addition, he or she may receive commissions on the sale of certain products. There are also many fee-based organizations that offer financial planning as part of a more comprehensive menu of services—such as tax, estate, and trust planning—and take a more holistic approach. 


How to build your planner relationship.

The CFP® you select will be fully prepared to help you organize the moving pieces of your financial puzzleand create a financial plan that addresses your financial objectives and reflects your values. He or she will initially focus on:

  • learning as much as possible about your needs, goals, time frames, and views on risk and 
  • gathering information on your current investments, benefits, insurance, and other financial accounts. 

After a few discussions, you may decide that you need to adjust your current cash flow so you’re more prepared to pay upcoming taxes. Or you might want to update your estate planning documents to make sure they reflect your wishes for how health care decisions are made on your behalf. Because these efforts will also include other providers—such as an attorney, accountant, tax specialist, or estate planner— your financial planner can serve as the liaison between you and these other advisors to implement your plan. 

For example, let’s say you and your financial planner decide that you need to purchase a life insurance policy but you have no idea what type of policy to purchase. Should it be a whole life, term life, or variable universal life policy?

The “second set of eyes” that a CFP® provides can also be a valuable resource for you because so many financial products today include agreements that are long, hard to read, and almost impossible to understand if you are not in the industry. In addition, your financial planner may offer a range of other services beyond planning that you can access without any additional costs. In short, you can use your planner as an ongoing resource, asking questions that come up throughout the year or updating your financial plan as needed.

Your financial planner can create a few scenarios based on your income, expenses, investment allocations, estate planning goals, and family situation so you have a better understanding of the type of policy you need when you meet with your insurance agent. As a result, you will be more informed about your options and better equipped to make a decision about the insurance product you purchase. 

This article is for informational purposes only and should not be construed as investment or legal advice.