In last week’s blog post, I covered what every financial plan should include regardless of whether you were concerned with retirement planning, planning for an inheritance or some other issue. This week, I want to focus on when you should consider having a comprehensive financial plan done.

Comprehensive Financial Plan

In general, there are two factors that drive how useful you will find a financial plan. They can be found below.

  1. The level of assets already saved or the level of savings your current cash flow allows.
  2. The complexity of your financial situation.

The first factor is straightforward. If you haven’t been able to save for a financial goal and if current cash flow won’t allow you to save towards the goal, focus on what needs to be done to optimize your cash flow so you can begin saving. Occasionally, I will get a call from someone primarily concerned with debt counseling, and although we don’t provide debt counseling, there are non-profits that do focus on this. I encourage the callers to work with debt counselors and improve cash flow before considering planning.

Beyond existing assets or cash flow, the other issue that determines the value of a comprehensive financial plan is the complexity of your financial situation. Complexity in a financial situation is often driven by events. A few common events that increase complexity and the value of a plan are as follows:

Retirement – for clients who are not yet retired, there are a whole host of decisions to make, from what Medicare plan to choose to when to begin drawing social security. Other decisions for clients at or in retirement include how to design the portfolio to meet their income needs to how to withdraw from the portfolio in the most tax efficient manner.

Marriage – financial issues are usually listed among the top reasons for divorce, so beginning a marriage with a solid financial foundation is key (this blog post outlines just how important). Among issues couples address in planning is developing shared financial goals, how and to what extent to coordinate day-to-day finances and how to fund and invest for the future.

Liquidity event – a windfall, expected or unexpected, is certainly a financial plus, but it can lead to issues. If the windfall is expected, understanding the tax consequences and what, if anything you can do to mitigate taxes is a plus. Additional questions that often arise include how the windfall impacts plan goals, how much should be saved and how the remainder should be invested.

Inheritance – an inheritance is a windfall of sorts, but typically inheritances bring with them very specific issues aside from those associated with liquidity events. For financial assets, determining exactly what you have, what should be sold and how the tax consequences should be managed can all be challenging issues. Furthermore, if the inheritance involves real estate, determining whether to keep or dispose of the real estate are all questions clients have worked through. Here is a fictional example of questions we helped a client address in working with an inheritance.

Even if you don’t find yourself in any of the specific situations above, you might benefit from a financial plan depending upon the level of your assets and savings, and the complexity of your situation. If you would be interested in discussing whether a comprehensive financial plan is right for you, please contact us.