10 Steps to Build a Successful Financial Plan

A financial plan is a document that details your financial goals and outlines an actionable strategy for reaching them. There’s no one-size-fits-all approach to financial planning, so building a successful plan takes some effort – especially if you have a complex financial situation, such as having several income streams, assets in different states (or countries), or multiple beneficiaries from previous marriages. Of course, planning is well worth the effort: Without clear goals – and concrete steps to reach them – it can be difficult, if not impossible, to achieve long-term financial well-being.

Here are the basics of building a financial plan, from investing and portfolio diversification to insurance and estate planning.

Quick facts:

• A financial plan outlines your financial goals and the steps you’ll need to take to achieve them.

• A successful financial plan is a work in progress that evolves as you experience major life changes.

• You can create your own plan or enlist the help of a financial professional.

1. Build your emergency fund

An emergency fund is a stash of money set aside to protect you against spending shocks like medical bills and surprise losses of income, such as losing a job. You should keep enough money in your emergency fund to cover six to 12 months’ worth of cash flow needs, though you might consider saving more if you have multiple dependents or a single-income household. No matter how much you stockpile, your emergency fund should be easily accessible in cash or cash equivalents, such as money-market funds, CDs or Treasuries.

2. Invest for your future

Investing in stocks, bonds, funds and other assets puts your money to work so you can reach your life goals and build wealth. A successful investment portfolio aligns with your time horizon, risk profile and investment goals and values. A well-diversified portfolio is essential: Diversifying both among and within different asset classes helps minimize risk while maximizing returns. As market performance alters the values of your asset classes, you’ll need to monitor and rebalance your portfolio to maintain a consistent allocation over time.

3. Develop a detailed cash flow plan

A cash flow plan helps you balance your income and expenses to meet your financial goals. It’s helpful to make a monthly budget to see where you stand now and consider your future cash flow needs for mortgage payments, college expenses (529s, etc.), travel, real estate taxes, retirement, etc. Be sure you have a plan to pay down high-interest debt as quickly as possible. That way, you’ll save on finance charges and have more cash to put toward your financial goals.

4. Make sure you are insured

After working hard to build your wealth, you’ll want to protect it. Insurance protects you from significant financial losses and can provide peace of mind. Consider the following types of coverage to ensure you’re adequately protected:

• Life insurance: Life insurance gives your beneficiaries a financial safety net upon your death. Generally, the younger and healthier you are when you buy a policy, the better rates and terms you’ll get.

• Health insurance: It’s no secret that healthcare in the U.S. is expensive. A good health insurance policy can limit your out-of-pocket costs for routine care, unexpected medical expenses and prescription medications.

• Disability insurance: Disability insurance replaces a portion of your income if you’re sick or injured and can’t work. When you qualify for benefits, you’ll receive a monthly payment that you (and your family) can use to maintain your quality of life. Your benefits will continue until you’re able to go back to work or your benefit period ends, whichever comes first.

• Long-term care insurance: Long-term care (LTC) insurance helps cover costs if you have a chronic medical condition or disability and can no longer perform everyday activities – like bathing, dressing and eating – on your own. According to AARP, the optimal age to shop for a long-term care policy is between 60 and 65, so you can balance affordability with total savings over time.

5. Get your estate in order

Estate planning lets you decide who gets what when you pass, who cares for your minor children if you can’t, who can make financial and medical decisions on your behalf, and much more. No single document establishes an estate plan. Instead, you specify your wishes through a collection of legal documents, including:

• A will: A will names the beneficiaries who will inherit your assets, appoints guardians for minor children and designates an executor to carry out the provisions of the will.

• A trust: A trust allows a trustee to hold assets on behalf of your beneficiaries while potentially avoiding probate and lowering estate taxes.

• A durable power of attorney: A durable power of attorney designates someone to handle your financial matters and make decisions on your behalf when you can’t.

• A healthcare proxy: A healthcare proxy (also called a medical power of attorney) appoints someone to make healthcare decisions on your behalf if you’re unable to do so.

• A living will: A living will outline your preferences for the medical care you want or don’t want to receive if you’re unable to make your own decisions.

Together, these documents ensure your wishes are carried out during your life and after you pass away.

6. Mitigate risk wherever possible

You can limit the risk of financial losses by being adequately insured and creating an estate plan, but you can also add another layer of protection by structuring your business (including real estate ownership) as a limited liability company (LLC) to shield your assets. An LLC protects the personal assets of the owners from business debts and lawsuits. LLCs also offer tax advantages, such as pass-through taxation, where business income or loss is reported on the owners’ personal income tax returns. ‍

7. Minimize your tax burden

Taxes are difficult to avoid altogether, but several strategies can help you minimize your tax burden. Here are a few ideas:

• Contribute to a health savings account (HSA): An HSA lets you save money to pay for most medical costs if you have a high-deductible health plan (HDHP). Your contributions are tax-deductible, and withdrawals are tax-free when you use the money for qualified medical expenses.

• Contribute to your retirement accounts: Saving for retirement can lower your near-term tax bill and your tax burden in retirement, depending on the types of retirement accounts you have. Contributions to traditional IRAs and 401(k)s may be tax-deductible in the year you make them, though you’ll owe taxes on withdrawals and will incur penalties if taken prior to age 59.5. With Roth accounts, there’s no upfront tax break, but qualified withdrawals in retirement are tax-free, even on your earnings. If you have a traditional IRA and expect to be in a higher tax bracket in retirement, consider moving the assets into a Roth IRA through a Roth IRA conversion.

• Tax-loss harvesting: Tax-loss harvesting lets you offset your capital gains with capital losses to lower your tax bill. The strategy involves selling investments at a loss and then using those losses to reduce your taxable capital gains during the year.

• Income tax planning: Be sure you’re leveraging available tax credits and maximizing your deductions to reduce your tax bill.

8. Insure your home and auto

A home may be one of your largest assets, so you’ll want to protect it with a comprehensive homeowners insurance policy. Similarly, any cars, RVs, motorcycles or boats you own should be adequately insured. When comparing policies, pay attention to deductibles, coverage limits, any exclusions listed (like flood damage) and endorsements for valuable items. Of course, home and auto policies have limitations. That’s where umbrella policies come in, which can safeguard your assets in two ways:

• Provide coverage when your primary insurance policies are exhausted.

• Cover claims excluded from your other policies, such as injuries, property damage, certain lawsuits and personal liability cases.

9. Monitor your total plan frequently

A financial plan isn’t a set-it-and-forget-it strategy. Instead, you should review and update your plan at least once yearly or whenever you experience a significant life change, such as marriage, the birth of a child, a divorce or a new job. That way, your strategy will keep pace with your ever-changing financial situation and dynamic life priorities.

10. Talk to a financial advisor

A financial advisor can help you improve your financial situation if you don’t have the time, inclination or experience to make financial decisions on your own. While financial advisors offer a broad range of services, their exact services depend on the type of advisor you hire.

Still, most financial advisors can help you in the following areas:

• Investment management, asset allocation and rebalancing

• Budgeting, cash flow planning and debt elimination

• Tax, retirement and estate planning

• Charitable giving and legacy planning

• Personalized financial plans to reach your short- and long-term financial goals

Bottom Line

A financial plan outlines your financial goals and a strategy for achieving them. By incorporating these 10 steps into your financial plan, you can control spending, increase savings, reduce taxes, protect assets, retire comfortably and build generational wealth. Building a robust financial plan can seem overwhelming, whether you have a modest or a high-net-worth. Consider working with financial professionals who can guide you through the process, so you have more time to spend on the things that matter most.

For more information on finding the right financial advisor that can address your unique needs, feel free to reach out directly to the Conway Wealth team by emailing info@conwaywealthgroup.com or calling 973.285.3640.

Investment advisory and financial planning services offered through Summit Financial, LLC, an SEC Registered Investment Adviser, doing business as Conway Wealth Group (4 Campus Drive, Parsippany NJ 07054. Tel.973-285-3600). Investing involves risk and there is no assurance that a diversified portfolio will outperform a non-diversified portfolio. This information is for informational purposes only and is not intended to be a substitute for specific individualized tax or legal advice. Summit Financial and its affiliates do not provide tax or legal advice. We suggest that you discuss your specific tax or legal situation with a qualified professional. 7397310.1

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