Getting Your Financial Plan in Order

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	A Plan for the New Year Personal Finance Advisor by Deloitte & Touche OnLine Feb. 9, 1998

A few simple actions can bring order to your financial house.

Like weight loss, financial responsibility is one of those resolutions roundly embraced on Jan. 1. Would-be savers nationwide open IRAs or boost their 401(k) contributions -- the financial equivalent to eating celery and carrots -- with the hope of somehow getting into financial shape.

Unfortunately, most resolutions become distinctly irresolute as soon as the first holiday bill comes due. As with dieting, the reason for the failure is a lack of reasonable goal setting and planning.

"People tend, in a sense, to start the financial planning process at the implementation end of the spectrum," said Ellen Boling, a director with Deloitte & Touche’s financial counseling services group. "They start by asking, ‘Should I buy this stock or that insurance policy?’ without saying ‘What is the goal I’m trying to reach?’ What is the process I’m going to follow? And how am I going to implement it?’"

A comprehensive financial plan should include income tax management, cash flow management, retirement planning, estate planning, investment planning, risk management and special-needs planning, according to the National Association for Personal Financial Advisers, which represents fee-only planners.

Smart financial moves
for 1998

1. Review new tax act. The Taxpayer Relief Act of 1997 may save you money. New rules govern home sales, IRAs, child credits, saving for college education, capital gains tax rates, estate-tax exclusions and appreciated stock rules for private foundations.

2. Revisit investment portfolio. Despite a volatile market in recent months, many portfolios were up substantially for the year. As a result, some workers may need to rebalance their investment portfolios.

3. Review goals and circumstances. If a person was married or divorced, had a child or lost a spouse in the last year, they should consider adjusting their financial strategies to match their new circumstances.

4. Start an emergency fund. The economy is strong and unemployment is low, but there are no guarantees.

5. Save for retirement. Each person is ultimately responsible for his or her own retirement. Those under 40 should save at least 10% of their incomes, while those over 40 should consider saving up to 15%.

Source: Institute of Certified Financial Planners.

"I don’t think most people have a clear expectation of what the financial planning process is going to be like and they’re surprised by how thorough it is," said Jane-Ellen Wolak, another director in Deloitte & Touche’s financial counseling services group. A comprehensive financial plan may take an advisor between 40 and 60 hours to prepare, said Wolak, and require as many as six meetings with a client.

While each plan is tailored to the individual, Wolak said a true comprehensive plan is a soup-to-nuts program that will include some or all of the following:

-- Insurance program. Whether they’re protecting property with umbrella, home or automobile coverage, or safeguarding themselves with disability, life or long-term care coverage, people need to manage the risks they face.

"No one likes to think about these things," said Boling. "It’s our job to make them think about them."

Among the considerations: what types of insurance -- such as term or permanent -- are appropriate and how much is needed.

-- Estate plan. Forming a plan to help family members cope in the event of death or catastrophic illness likewise needs to be part of a plan. An estate plan should include a will, which identifies executors and guardians, durable power of attorney, a living will informing physicians and family members of a person’s wishes in the event that he or she is unable to voice them, and letters of instruction.

But estate planning means more than hiring a lawyer and preparing for life-or-death decisions. It means discussing difficult issues so that, during a time of crisis, family members won’t be left to wonder whether they’re fulfilling a loved one’s wishes.

-- Cash management. Whether they are saving for college tuition or want to retire by age 62, people need a financial target to shoot for. Cash management is a broad term encompassing everything from budgeting to taxes. Some critical cash-management steps are: establishing cash reserves that can last for three to six months and can be tapped in the event of a short-term illness or disability; managing debt; optimizing a tax burden; and developing an investment program.

Perhaps the most important point about a financial plan is its individuality. While for some estate planning might center on minimizing taxes, for others it might be more important to choose guardians for children or designate heirs for valuable items.

Similarly, while an executive may need to assess exercising stock options, her co-worker may be more concerned with maximizing his contribution to an employer-matched 401(k) program.

"Each financial plan is so personalized," said Diane Schumacher, a spokeswoman for the Denver-based Institute for Certified Financial Planners. "It’s really based on the client and what the client’s individual goals are."

Just as consumers have different needs, they also have different relationships and resources upon which to draw. One might have a long-standing relationship with a stock broker, while another may be in search of an attorney to work with her financial planner on an estate plan.

"I think what you really want is a quarterback to coordinate all those efforts because you want them working in concert," said Wolak. "You need to make sure those relationships are working in sync."