Importance of financial planning for North Texans in an uncertain economy, part 2

Most people don't plan to fail, they just fail to plan.

by Jonathan Cott, finance contributor and certified financial planner of Axa Advisors

Too many people make their investment decisions based on what every one else is doing. They follow the crowd into the hottest sectors of the market, only to suffer the consequences when those sectors take a dive.

There is a way to safeguard your financial future without worrying too much about where the market is heading. It’s called planning, and you do it all the time. You plan for a vacation; you plan for a wedding; you plan when you put a new addition on your home.

Yet, too often the most important plan is neglected — your plan for your financial future. A plan is simply a roadmap that shows where you are now, where you’re going, and how best to get there. By putting your investment decisions into a larger perspective, a financial plan helps you avoid the trap of investing based on what other people are doing — instead of what is best for you.

To create a comprehensive plan, many people seek the help of a qualified financial professional. This person has the knowledge and experience to help guide your key decisions about your financial future.

The planning process begins with a lot of questions. The purpose of these questions is to determine your goals, investment objectives, risk tolerance and dreams for the future, and to try to anticipate future events and contingencies so that they can be incorporated into your overall financial blueprint.

The next step is constructing your financial profile. This consists of an accurate picture of your current financial status, including your net worth, current income, potential income, debts, taxes, insurance, and other financial considerations.

Step three combines step one and two by creating a guideline that shows how you can get from where you are now to where you potentially want to be. This is where the guidance of your financial professional is especially useful. He or she will help you determine how much you need to save and suggest ways to help you meet your financial obligations. Your financial professional will also help you select the right mix of assets (short-term investments, bonds, stocks and other vehicles) that may help you meet your future goals while controlling risk.

By implementing the plan, you free yourself from making ad hoc decisions about investments. You won’t be chasing market fads because you’ll know exactly what investments are right for you. That doesn’t mean you can’t “play the market.” But it does mean that you will know exactly how much of your investment assets you can afford to put at higher risk without jeopardizing the achievement of your goals.

The final step is to monitor and review your progress over time. Your goals or situation may change, and you will need to adjust and refine your plan to reflect these changes. By sticking to the plan, monitoring progress, and making changes as needed, you’ll have the best chance of achieving what you set out to accomplish.

This material is not intended as tax or legal advice. You should consult with your personal financial, tax, or legal advisor regarding your specific situation before implementing any estate or business strategy.

GE-41872 (10/07)(Exp.10/09)

Have a finance question for Jonathan? Email him at jonathan.cott@axa-advisors.com.

• Staff
• Verified User
• Anonymous