Comprehensive personal financial planning involves an analysis of your entire monetary situation. Everything from insurance to investments, including retirement and college plans, must be evaluated and considered. You must determine where you stand with the policies, plans and arrangements currently in place, where you should be based on national averages and industry recommendations and what it will take to get you on the right track. The process is long and complicated and must be done properly to achieve valid, actionable results.
Evaluate your current life insurance coverage. Gather your existing policies and review them to ensure you understand the coverage and limitations of each one. Contact your employer's human resources director and request information about any company-provided group term life insurance. Calculate the total amount of life insurance you need and determine if your current coverage is sufficient.
Review your current disability insurance policies. Request a copy of the coverage details from your employer's human resources department if your company provides any short- or long-term disability coverage. Determine the appropriate monthly benefit amount and evaluate your existing policies to ensure you are properly protected.
Review your existing health insurance policy details. Examine the benefits summary to make sure you're aware of any deductibles, co-pays, limitations, prescription benefits and provider lists. Determine if the coverage provided is sufficient for your family's needs and that all of your primary physicians and facilities are within the insurance company's network.
Check your emergency reserve fund level. Your goal should be to accumulate six months' worth of expenses in a liquid account, like an ordinary bank savings account. This money should only be used to pay for legitimate emergencies and not for simple pleasures or impulse purchases.
Examine your current retirement-planning efforts. Review the performance of your IRA and 401(k) accounts to determine if any changes or adjustments may improve the results or increase the growth. Create hypothetical projections of the future value of the accounts to ensure your contribution level is sufficient to generate enough money for you to retire comfortably.
Consider your risk tolerance and time horizon. Evaluate your threshold for market volatility and fluctuations in your account, then ensure your investment portfolio is comprised of appropriately diversified securities. Evaluate your time horizon to ensure the allocation of your investments is suitable for your intentions.
Evaluate your college plan. If you have been saving money for your child's future education, or have a desire to do so, examine available education investment accounts, like 529 plans. Determine how much you must invest to accumulate an appropriate amount of money to fund your child's higher-education expenses.
Review your long-term care coverage. Examine the provisions and coverage provided by your policy. Determine if the features and benefits afford a sufficient benefit amount to pay for your care and if the elimination period is within your means to provide self-support until benefits begin.
Consider the quality of your current estate plan. Ensure your documents are properly formatted and contain the language necessary to provide your heirs with the assets and arrangements you want. Be sure to include a properly executed living will and power of attorney in addition to your last will and testament.
- Enlist the services of a certified financial planner (CFP). Because so many aspects of your financial life are involved in creating a proper financial plan, it is in your best interest to seek the assistance and advice of a trained and experienced professional.
- Prior to beginning, gather the most current information about your existing assets and liabilities. Compile the current month's bank statements, loan and credit card bills, retirement plan balances, insurance policies and other relevant financial documents. Having the most up-to-date and accurate information results in a more valid plan.
- Do not attempt to initiate more advanced investment concepts until you have first secured your family's ability to continue paying the bills. Before opening any investment accounts, make sure your life insurance coverage is large enough to protect your family's ability to continue living in the lifestyle to which they have become accustomed.
Items you will need
- Insurance policies
- Mortgage statement
- Bank account statement
- Loan statement
- Estate documents
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