Although some individuals shrink away from working with professional financial planners because they feel it is something they can do by themselves, circumstances often arise when paying for specialized financial advice is a worthwhile investment into future financial stability. When is it the right time to pursue professional financial advice? How do you know when to hire outside help?
Follow along to learn about the basics of financial planning, including when to consider utilizing financial planning services to take control of complex financial situations.
What is Financial Planning?
By definition, financial planning is a three-step process:
- Evaluating where you currently stand fiscally
- Defining long and short-term goals
- Outlining a plan to reach each goal
When is Financial Planning Important?
A financial advisor is beneficial for individuals tackling difficult issues related to wealth management or looking to grow personal finances and improve their future financial position. We have listed a few examples of circumstances demanding the expertise of a financial professional.
1. Pursue Financial Planning When Retirement is Close
Retirement is one of the biggest events you will experience in your lifetime, and certainly one of the most significant. However, financial freedom and security does not just happen.
Are you close to retirement age? Seeking the assistance of a financial advisor now serves to ensure you are on the right track and answer any pressing monetary questions such as:
- Do I have enough money to retire on time?
- Are there ways I can cut spending and save more right now?
- What are my options?
Financial advisors are trained to answer these questions and provide insight into the unique challenges of retirement planning.
2. Pursue Financial Planning to Manage an Influx of Wealth
Two primary life circumstances often contribute to sudden inflows of money that must be properly managed: earning a significant raise or receiving an inheritance.
A significant raise or bonus is exciting, [SB3] [SZG4] often the result of long, strenuous hours over years of dedicated service to a particular organization. While some individuals choose to dedicate this money towards short-term amenities or improved quality of life, you may decide to invest in future wealth. Professional financial planning offers insight into where and how to invest, your available options, and the best path to earn a return on invested wealth.
Receiving an inheritance is perhaps one of the most critical life circumstances to pursue the assistance of a financial professional. A significant inheritance can be unexpected, leaving the recipient with numerous questions, such as how to best invest the wealth[CC5] and how to adapt lifestyle to accommodate a sudden influx of money. People receiving an inheritance will need to ask, “What is the tax impact of the inheritance?” Once again, financial planning guided by an industry expert can help you discover a prudent plan of action.
3. Pursue Financial Planning for Cash Flow Management During Life Events
As people grow[SB6] in their career and accumulate more wealth, working with a financial advisor can help with planning for cash flow, savings for retirement, college savings planning, or other goals. When salaries or bonuses rise, it may be helpful to see what tax strategies you can implement to offset what taxes you pay. .
4. Pursue Financial Planning When Considering Charitable Giving
Individuals interested in creating a charitable plan designed to maximize your charitable legacy should consider how this strategy coalesces with your overall financial goals. Additionally, charitable giving benefits from consistent analyzation to ensure the plan is as tax efficient as possible. Financial professionals [SB7] [SZG8] poised to assist with charitable giving often help plan:
- How much to give and when
- The most efficient assets to give
- The best tax strategies to maximize giving
- Donation of required minimum distributions from traditional IRA plan[CC9]
5. Pursue Financial Planning While Income Tax Planning
Proactive income tax planning can save you thousands of dollars throughout your lifetime. Working with a Certified Financial Plannertm who is also a Certified Public Account (CPA) guarantees expertise into strategic income tax savings. Proper income tax planning can incorporate a variety of strategies, including:
- Preparing multiple year income tax projections
- Considering the impact of the Alternative Minimum Tax (AMT)
- Avoiding underpayment of estimated tax penalties
- Consider a “Donor-Advised Fund” for charity
6. Pursue Financial Planning to Take Control of Your Finances
Even if your circumstance does not fit into any of the aforementioned categories, financial planning can be beneficial for anyone looking to take control of current and future finances. Whether you want to have a comprehensive financial plan – or simply need to rethink your current financial trajectory – enlisting the assistance of an industry professional is a worthwhile investment.
DHJJ Financial: Detailed Financial Planning Services
At DHJJ Financial, our Certified Financial Plannertm provide a comprehensive evaluation of a client’s current and future financial state and addressing a multitude of common areas needing expert financial planning.