Mistakes are Expensive: A New Generation Embraces Financial Planning at the Mid-Stage

Financial planning has evolved beyond investing assets. The old model limited comprehensive planning to a wealthy few with high levels of manageable assets. For many people, their first engagement with a financial advisor was when they needed to create a retirement income plan.?There is a new generation looking for additional services beyond portfolio management and a retirement income plan.?They understand that financial planning is all about tools, tactics, and strategies that can be deployed in tandem to help them keep more of what they make and actively grow their wealth.

In this blog series I will discuss some of the various tools and strategies that will help you reduce the chances of “mistakes” which can be costly to your long-term financial plan.??

Cash Flow Planning is the Foundation

Budgeting is the buzzword. It’s about making choices to keep spending in check, with almost a scarcity mindset. It is about current expenses and works best over a short-term time horizon. Cash flow planning looks at the short-term and the long-term. It is a tool to help you make decisions that will help you achieve future goals.

The process helps you identify future income and expenses and plan for big-ticket items. The result becomes part of your financial plan and dictates changes across your financial plan. Understanding and detailing your flows keeps your investments tracking. It gets you thinking big picture, including minimizing taxes and protecting your assets.

Saving for Kids’ Education

If you haven’t started one yet – the sooner you get saving, the better. They grow tax-free (if used for qualifying educational expenses) so that you can build a nest egg for education spending. You can fund a 529 plan with up to $16,000 per year and still qualify for the annual gift tax exclusion – but you can also fund five years at once if you're behind and want to catch up. 529’s aren’t just for college – K-12 qualifies as well.

Risk Management

Life insurance is critical to keeping your family’s lifestyle and goals on track. For most people, a term life policy offers the ability to cost-effectively replace your salary during your prime earning years. The rule of thumb is the policy should be 5-10 times your annual pre-tax income. It may also be time to think about an umbrella liability policy to protect your assets over and above your existing coverage. But as your income increase – or the potential for income through equity compensation -?you want to be sure you minimize risk. An umbrella policy can provide the coverage you need, but it's important to factor in the cost.?

It’s Not a Rainy Day Fund – It’s a Sunny Day Fund

Having an emergency fund of 3-6 months of expenses in an accessible account is a solid place to start. But once you’ve achieved that, are maxing out your 401(k), and saving for specific goals on the side, what do you do with excess income?

It's all about your time horizon. While your emergency fund is in cash, your taxable investment is goal-specific, so having an account that you invest for opportunities can make sense. It can allow for growth, possibility, and above all - optionality.

?Tax Planning Keeps Your Income in Play

?All of the tactics I addressed above have one thing in common: tax planning. The theory behind effective tax planning is two-fold:

·???Reduce taxes this year

·???Reduce lifetime taxes?

Tax planning touches every part of your financial life, and it is a series of tactical maneuvers combined with proactive actions. It's thinking through the impact of every move with a tax lens. Because what you make is ultimately defined by what you keep.

The Bottom Line

Financial planning can help you make the right choices to move towards your goals, but ultimately, it is on you to exercise the disciple and follow the outlined and agreed up-on plan.?Changes to your plan will be inevitable but having an awareness of the items I outlined above can help provide for a good starting point. ??

?

?

?

This work is powered by Advisor I/O under the Terms of Service?and may be a derivative of the original.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

Securities offered through Pinnacle Investments, LLC. Pinnacle Investments, LLC is a member of FINRA/SIPC and a Registered Investment Advisory with the SEC. We do not provide tax advice and recommend you seek the advice of a qualified tax professional. Pinnacle Investments, LLC is a proud member of the Pinnacle Family of Companies, an organization designed to provide a full range of financial solutions to individuals, businesses, and institutions. For more information on our member companies, visit Pinnacle-LLC.com.