Your Money, Your Future: The Art of Financial Planning Unveiled

Key Takeaways

• Essentially, financial planning is the process of taking a holistic look at one’s financial situation and creating a detailed financial plan for achieving one’s future goals.  

• Establishing a budget, which is an essential part of financial planning, helps to determine how much income is going out and where it is going, and whether one’s spending habits are in line with one’s income and goals.

• Financial planning is different from asset management, which generally refers to investment management.

There is really no downside to financial planning. In fact, plotting one’s financial future can help people create the life they desire. But beyond creating better financial habits, and saving more money, many people do not know what financial planning is, and the role investing can play. With that said, here is your money, your future: the art of financial planning unveiled. 

What is Financial Planning?

Essentially, financial planning is the process of taking a holistic look at one’s financial situation and creating a detailed financial plan for achieving one’s future goals.  

As such, financial planning commonly includes several areas of finance, including investing, savings, taxes, one’s estate, insurance, retirement, and more.

Many people employ an expert such as a financial advisor to help them establish where they currently are financially, identify their financial and life goals, and plan for how to reach them. 

Note that financial planning is different from asset management, which generally refers to investment management. Although considered essential, investing is but one possible element of comprehensive financial planning.

Benefits of Financial Planning

There are many advantages to financial planning, including:

• Wealth creation. Whether through investing or saving, developing a personalized plan to achieve financial goals can help people, over time, build wealth.
• Risk management. In fact, risk management is a key component of training for certified financial planners. Such experts understand how to assess clients’ exposure to risks, particularly when it comes to investments, and help with decisions regarding such risks.   
• Goal achievement. Establishing financial objectives provides people with specific goals to work toward and plan for, and calls for aligning income, expenses, and investments with desired outcomes. An effective financial plan establishes strategies for achieving short- as well as long-term financial goals.

Types of Financial Planning

There are various types of planning that commonly go into financial planning, including:

• Tax planning. Helping clients with tax issues – existing or potential – is usually a big part of financial planning, and generally involves figuring out how to maximize their IRS refunds and mitigate their tax liability. Some advisors will also assist with tax preparation and filing.
• Estate planning. This essentially involves making sure the lives of one’s loved ones are made at least somewhat easier after the person’s death. It generally seeks to preserve the most wealth possible for intended beneficiaries. The process usually includes preparing a will. 
• Retirement planning. If the plan is to, one day, cease working, financial planning can help people make the most of their Golden Years. Generally, financial experts can help clients make certain that they have saved sufficient funds to live the retirement lifestyle desired.
• Investment planning. While the distinction has been drawn between financial planning and asset management, such planning can include help with investments. An effective planner can help their client determine the amount they should be investing and what they should invest in.  

Implementation and Adjustment

There are some key considerations when it comes to implementing financial plans and adjusting as life changes.

1. Importance of diversification. Beyond the fundamentals, there are various elements of financial planning that drill down to details. When it comes to investing, for example, a key issue is diversification – spreading capital across multiple investments and asset classes. Diversifying investment portfolios can lower overall investment risk, heighten the potential for returns, help insure long-term financial stability, and more.
2. Importance for regular review and adjustment. Because life happens, it is smart to regularly review, and their financial plans, and pivot where applicable. Some experts recommend an annual review to allow the financial advisor to take a fresh look at goals to see if their client is on track.

How Can You Start Preparing for Your Financial Future?

There are tried-and-true steps people can take to prepare for their financial future, including:

• Create a budget. Budgeting is considered foundational to financial planning. Establishing a budget helps to determine how much income is going out and where it is going, and whether one’s spending habits are in line with one’s income. 
• Think about money needed for retirement. Most people have in mind a certain way they wish to live in retirement. Achieving that rarely happens by accident. Rather, it involves determining retirement income goals then planning to meet such goals. In turn, that can involve pinpointing income sources, sizing up likely expenses, putting in place a savings plan, and helping with asset management and risk. Our retirement calculator can be your first step here.
• Determine how much money is needed for emergencies. Figuring out how much to set aside for emergencies is up for debate. A financial calculator can help with that. Overarchingly, though, what is supremely important is that the client is saving. To gain optimal benefits of such saving, and to help ensure the funds are there for the unexpected, many experts ascribe to the three to six months of living expenses approach. Having money set aside for inevitable emergencies such as car repairs can help people avoid debt, since they will not have to pull out a credit card to take care of the situation. 
• Invest in your future. There are many benefits to investing, including the potential for building wealth, increased financial independence, protection against inflation, and having funds for retirement. And there are many investment options, including alternatives – basically securities other than stocks and bonds. Consider the popularity of the alternative investment platform Yieldstreet, which offers curated and vetted opportunities in asset classes such as real estate, art, and transportation. In addition to possible steady secondary income, and lower volatility due to low stock market correlation, such assets serve to diversify investment portfolios. After all, diversification is a key component of successful investing.   

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

Ultimately, proper financial planning can help people gain control over their income, reach life goals, live a fulfilling retirement, and leave a legacy for heirs or a cause in which they believe. Such planning can include investing, including alternatives to stocks and bonds.