In our new world, managing your personal finances is the same as it ever was.
Here’s what I mean.
There are five elements of a comprehensive financial plan: goal planning, investing, tax, insurance and estate planning. Success in personal finance requires addressing each area.
That has not changed one bit.
What has changed is the stakes — or, more specifically, the likelihood that not managing your plan can have serious consequences.
Here are five examples:
- Insurance. If you don’t have the life insurance you need to achieve your financial goals, it’s more important than ever to get it. Health care insurance is also more critical than ever.
- Estate planning. It’s always easy to put off updates to your will, powers of attorney or trusts. But ask yourself: if you pass away in 2020, do these documents accurately reflect how you want your assets distributed to your heirs? Do they provide the right instructions to someone caring for you if you are incapacitated?
- Goal planning. Have you thought clearly about the different financial scenarios you could face over the next 10 years? For example, is the risk of job loss or income reduction higher than you imagined a year ago? If so, have you taken steps to reduce your annual spending, increase savings or adjust other goals like college expenses?
- Investing: Has your comfort level with stocks changed, perhaps in light of increased job risk? If so, have you taken steps to adjust your stock / bond mix?
- Tax: Are you monitoring tax law changes to reduce your lifetime bill? For example, as part of the recent stimulus package, retirees don’t have to withdraw, and pay tax on, a portion of their retirement plan accounts in 2020. That can be a real tax savings.
I cannot think of a time over the past 20 years when the value of an up-to-date, comprehensive financial plan was greater than it is now.