So many changes have occurred in the last decade in response to our country’s economic circumstances – some good and some bad – making it difficult for consumers to know what to do. Various financial products and phrases that I’ve mentioned in previous articles may already be obsolete or in the process of phasing out as companies introduce new options to the marketplace. While decades ago consumer choices were limited basically to checking, passbook savings, and Cds, today’s options are greater than ever. It’s tough to evaluate all this on your own and even more complicated to make wise decisions. I’m practical by nature, so as a financial adviser I like giving clients practical advice about small changes with potential for big rewards – especially when monitored consistently and adjusted as needed. With practicality in mind, let’s simplify current financial products and processes.
Financial planning can be placed in three basic buckets: protection, wealth accumulation, and wealth distribution. All three go together, yet each is individually important. Hope for the best, plan for the worst! Summarizes this concept best.
The protection bucket insures your life, health, income, and property. This bucket is your worst bucket, meaning that it protects your most valuable resources when needed most, during worst-case scenarios. Today’s new innovations among protection products complement your overall planning goals more than ever before. However, it’s imperative to regularly evaluate how the products are working with regard to your current situation as well as your long-term goals. Life happens, and as a result these products must be consistently reviewed so your family is securely protected for whatever life brings your way.
Bucket two, wealth accumulation, is a holding tank for your various assets. The list of options is longer than space allows, so think of this as your hope bucket based on future goals. You can opt for qualified plans or nonqualified plans, mutual funds, stocks, bonds, ETFs (exchange-traded funds), and the list goes on. Money in this bucket is at risk, and it should not be viewed as a source for short-term cash. This bucket requires patience, nurturing, and time for hopes to be delivered. There is no assurance that investing in these vehicles will be profitable or successful.
Wealth distribution comes into play when your assets have reached your designed goals and consumption begins. In other words, wealth distribution is when you empty your bucket! The best approach for distribution will vary based on your individual situation and is usually dictated by each objective you may have in mind, as well as current tax codes (about which I do not provide advice), market conditions, and overall purposes. For example, in the retiree market, basic expenses should be covered by guaranteed income resources whenever possible.
One more bit of advice – financial planning is implemented in one of two approaches: proactively or reactively. Proactive plans are more likely to create desired results, while reactive plans leave us asking What happened? Your family’s financial future is too important to try it alone. Plan your financial buckets proactively and strategically by reaching out to a financial professional you trust and with whom you can speak freely.