Just as a successful flight includes many complex and moving parts, an effective financial plan requires several considerations. When approaching the construction of a financial plan, you will learn that there are things that you have a great deal of control, things you have some control, and also things that you have no control over.
The best way to approach these aspects of financial planning is to seek professional guidance over the things you can control and focus personally on the things over which you have some control.
“I don’t get upset over things I can control, because if I can control them there’s no sense in getting upset. And I don’t get upset over things I can’t control, because if I can’t control them there’s no sense in getting upset.” - Mickey Rivers, former pro baseball player and author
Total Control - Working with a Professional Financial Planner
Engaging the help of a professional financial advisor to help you focus on the things you can control is an investment in a secure future. Personal finances are often accompanied by emotional baggage. It can be hard to separate emotion, that causes impulsive or ill-advised decisions, from logic, that results in a sustainable, smart plan.
Consider working with a professional advisor to plan for the things you have total control over:
Spending - Ultimately, you have control over how much money you spend. Sometimes, that means making the tough decisions about wants versus needs and nice-to-haves versus necessities. Creating a budget that accounts for both routine bills and unexpected expenses will help control your spending and keep it within reasonable parameters.
Savings - Conventional wisdom has varied over the years about the “right” amount to save for the future. The truth is that this number will be different for every individual and can best be determined within the context of your current and future income and spending.
Asset Allocation - Perhaps one of the most important elements in any good investment plan, which is a necessary component of a good financial plan, is asset allocation. When you are younger and still have the majority of your earning years ahead of you, you can take on a little more risk for the expectation of a little more reward. If you are nearing retirement, however, you will want more of your investable assets in safer vehicles. The goal of effective asset allocation is reducing your risk exposure while maximizing your return.
Based on your outlook, goals, assets, and individual profile, the amount of portfolio risk you take on is fully within your control. A skilled investment advisor can help you determine the right amount of risk for your circumstances and adjust your asset allocation to accurately reflect your risk tolerance. It’s a delicate balance, but you want a plan that meets your needs without keeping you awake at night!
Focusing on Things that You Have Some Control Over
While not immediately obvious, your health and longevity are key components to your financial plan. Taking care of yourself and doing everything possible to stay healthy can greatly impact your future medical costs and savings. Nothing will drain your retirement resources more quickly than an unexpected or lengthy illness. Good health not only improves your chances of living longer, but also provides a better quality of life for you and your family. Should the unthinkable happen, make sure you have contingencies such as long-term care insurance or life insurance in place to protect your assets.
You have some degree of control over both your compensation and the timing of your benefits. You can also decide, based on your health and the needs of your family, how long you will remain employed. Obviously, continuing to work extends your income stream, but there might be other quality-of-life factors that take precedence.
Avoid the Things You Can’t Control
In retirement, you’ll have a lot more time on your hands for the things you want to do. It’s tempting to try and manage your investments on your own, but that’s not necessarily what’s best for your peace of mind or your portfolio. Chasing market returns and obsessing over the Dow are exercises in futility and represent the ultimate example of things you can’t control. Making financial decisions based on short-term performance numbers can be catastrophic - just ask anyone who left the market after the 2008 crash and missed out on the subsequent rebound. Having a long-term plan (and sticking to it) and deliberately ignoring short-term results are your best options for reaching your financial goals with a minimum of stress and angst.
As we’ve recently witnessed, politics and government are often completely unpredictable. As individuals, we have almost no control over legislation, rates of taxation, or the funding of federal and state benefits for retirees. It can be interesting to follow developments in these things, but basing financial decisions or focusing your efforts on trying to determine the direction tax law or entitlement funding will take depletes your energy and can lead to poor decision making.
It’s an old adage, but one that is especially true when creating a financial plan and approaching retirement: Focus on what you can control and plan for the rest. You will not only do a better job of saving your money, but also holding on to your peace of mind!
ASK FOR HELP
For guidance on the things you can control in your financial plan, request a call to speak with a Financial Consultant at RAA who can discuss your options and make recommendations based on your unique situation.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.