Planning early is key to a secure futureWritten by Michael Stainbrook | | email@example.com
All people have goals, but no goal can be met without a plan, according to local financial experts.
Any goal, such as retirement, home ownership or saving for college requires a plan, said Paul Abendroth, Hylant Financial Services president.
“[Financial planning] is basically like a road map,” he said, adding that saving and investing are the two keys to fulfilling the goal.
“By themselves, they don’t always help you reach your goals and objectives to make your financial plan. You need to do both.”
But achieving a goal, such as retirement, is not a cut-and-dry process. Dock Treece, president of Treece Investment Advisory Corp., said financial planning is a commitment, not an event.
“Financial planning can’t be static because all financial plans have to be built on assumptions,” he said, listing inflation and interest rates as factors to which an investor must adjust.
“If any one of those things changes in the financial plan, then all of your assumptions are off. You have to be aware of what’s going on.”
To implement a financial plan, a person must identify a goal, such as retirement at a certain age. He or she must then determine what dollar amount will be necessary to achieve that goal. The planner must then commit to set aside a certain percentage of his or her income to save and invest.
“The real basic is obtaining the data you need to determine where the client sits today,” said Jack Briner of Toledo Financial Group LLC. “Then, we take it from there to project a retirement date.”
Although the dollar amount and percentage each person needs to save and invest varies, investors agree that starting early and being willing to make adjustments are key components.
“There is no question that the earlier you make the plan, the better off you’re going to be,” Briner said. “The sooner you start, the more you’re going to have.”
Briner advises putting three to six months’ wages in a money market account in case of a loss of employment or a series of unforeseen expenses. This will allow the long-term savings and investments to remain unharmed despite short-term struggles.
While savings and investments should not be used for present expenses, Treece said it is important to be flexible and reallocate investments when the economy changes.
“There is no investment that is good for all times, but no matter what times are doing, there is some investment that’s good,” he said. “When the economy changes, which investments are going to do well is going to change. An investment that’s good today, six months from now is probably not going to be the right place to be.”
Briner said that any personal changes, such as marriage or a new baby in the family drastically alter one’s financial outlook and call for a review of the plan.
Treece said the upcoming years will likely follow the trends of the 1970s, during which time the economy fluctuated and investments had to be monitored closely. He said saving hard money is a much more reliable plan than expecting an increase in housing value to provide an alternate means of savings.
“This country for a long time has relied on other things, including growth in the value of their home, growth in the value of their 401(k) or other things as a substitution for savings,” he said. “That has worked for this period of time. It is not likely to work in the future.”
Treece also warned that inflation rates, though low now, may jump to levels that would require many people to reevaluate their savings and investments.
“While right now the inflation rate’s low, in my career, I’ve seen inflation rates run all the way from zero to in excess of 12 percent a year,” he said. “That’s a huge spread. A lot of people today are probably assuming a lower inflation rate than is going to be real over the next 20 years.”
The advisors recommend several guidelines for sticking to a successful plan. First, consumers must live within their means. This calls for careful use of credit cards and an elimination of frivolous spending.
“You should never put anything on a credit card that you can’t pay off at the end of the month,” Treece said. “You have to adjust your lifestyle to live at a lower level than your income.”
Another tip is to continue investing even when the market is poor. With diligence, funds can be moved to make money even in the worst of economic climates.
“People have to maintain their financial plan. They need to continue to invest,” Abendroth said. “If the markets are going down, the financial plan can provide a baseline.”
Reviewing the plan will eliminate the need to make massive changes. Treece believes the financial plan is a set of individual issues that must be addressed individually rather than a checklist that can fail if any economic assumptions change.
“We find that most people don’t need a full-blown book financial plan. They need to deal with issues,” he said. “We try to deal with issues that clients are facing and not with their whole financial plan at one time.”
Each person’s financial plan will be different, and decisions need to be made on a personal basis. The type of plan someone has will determine the frequency that it needs to be checked. As a general guideline, Briner said a person should review the plan with his or her advisor annually. Treece said an investor who does not use an advisor should reevaluate quarterly. With due diligence, saving and smart investing, a financial plan can go a long way toward ensuring the fulfillment of one’s goals.