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Investing ≠ Financial Planning

When the subject of personal finance and planning for the future comes up, the topic of investing often dominates the conversation. While investing is indeed important and plays a significant role in achieving financial goals, it should not overshadow other essential components of a comprehensive financial plan.

Financial planning is the process of developing a roadmap for your journey towards achieving well-defined goals and objectives. However, it’s important to recognize that the route will undoubtedly encounter roadblocks and other obstacles along the way which will require detours and updates in order to arrive at your final destination – financial freedom.

Picking the “best” mutual funds, ETFs, individual stocks and “alternative” investments or trying to outperform the S&P 500 Index is not financial planning. Don’t let anyone tell you otherwise. It’s much more. It involves assessing your current financial situation, addressing your concerns and questions, establishing goals, and developing strategies – including, but not exclusively, investing – to reach those goals effectively.

Financial planning recognizes the relationships between a number of equally important components and prioritizes financial well-being, adaptability and flexibility over the pursuit of short-term investment gains. These include: 

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Budgeting and Cash Flow Management:

Develop a detailed spending plan outlining income sources and all expenses, including fixed costs (e.g., rent/mortgage, utilities) and discretionary spending (e.g., entertainment, dining out).
Track expenses to identify areas for potential savings and ensure that income exceeds expenses, allowing for savings and investments.

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Debt Management:

Evaluate existing debts, including credit card balances, student loans, auto loans, and mortgages.
Develop a plan to prioritize debt repayment, potentially consolidating high-interest debts and utilizing debt repayment strategies to reduce interest costs and accelerate payoff.

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Emergency Fund:

Establish an emergency savings fund to cover at least 3-6 months’ worth of living expenses.
Keep emergency funds in a readily accessible, low-risk account (e.g., savings account or money market fund) to address unexpected financial setbacks without relying on debt or liquidating investments. 

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Insurance Coverage:

Assess insurance needs to protect against unforeseen risks, including health insurance, life insurance, disability insurance, property insurance (homeowners/renters), and liability insurance.
Ensure adequate coverage levels based on personal circumstances, family composition, and financial obligations.

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Tax Planning:

Optimize tax efficiency by leveraging tax-advantaged accounts (e.g., 401(k), IRA, HSA) and maximizing deductions, credits, and tax-deferral strategies.
Strategically manage taxable events (e.g., capital gains, retirement distributions) to minimize tax liabilities and maximize after-tax returns.

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Retirement Planning:

Estimate retirement needs based on desired lifestyle, expected expenses, and retirement age.
Develop a retirement savings strategy, including contributions to employer-sponsored retirement plans (e.g., 401(k), 403(b)) and individual retirement accounts (e.g., IRA, Roth IRA).
Consider factors such as Social Security benefits, pension plans, and potential healthcare costs in retirement.

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Life Happens (Scenario) Planning:

The best laid plans do not stop life from happening.
Typical scenarios requiring special, or sometimes immediate, attention range from marriage, children, leaving the workforce to care for aging parents and inheritances to divorce, career transitions, and early retirement.

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Estate Planning:

Create or update essential estate planning documents, including wills, trusts, powers of attorney, and healthcare directives.
Designate beneficiaries for retirement accounts, life insurance policies, and other assets to ensure proper distribution according to your wishes.
Minimize estate taxes and probate costs by implementing appropriate estate planning strategies.

So, while there is no argument that investing is an important piece of the equation, it is not financial planning.

True financial planning involves examining your entire financial picture, understanding how all of the pieces fit together and educating and empowering you to make informed decisions with confidence.

• This post is general education – not investment, tax, or legal advice •

 Christopher Lazzaro, ChFC®

Christopher Lazzaro, ChFC®

Founder and President at Plan For It Financial, LLC

Following a more than 30-year career in investment management and insurance, I founded Plan For It Financial. In doing so, I followed my passion for helping others gain a deeper understanding of their personal finances. Distilling complex financial topics and presenting them in a straightforward manner is central to my approach and process. I take great pride in and am grateful for the opportunity to guide clients as they navigate the challenge of balancing living for today, while maintaining an eye toward the future. Bridging this gap through education, realistic goal setting, establishing priorities, and practical, actionable advice without the unnecessary layers of financial jargon and complexity is my firm’s primary value proposition.