Your business: Financial planning and your summer vacation

You can always find a reason not to start your financial plan, but the long-term effects of delay can be damaging.

August 1, 2013 22:37
3 minute read.
Lakeview Wellness Center

On the shores of the Kinneret. (photo credit: Courtesy)

Vacation, all I ever wanted Vacation, had to get away Vacation, meant to be spent alone (The Go-Go’s) I write this sitting at Starbucks overlooking the beautiful Puget Sound on a glorious day in Seattle after just having touched down for a vacation with some of my children. Hot temperatures are soaring and no school means one thing: Summer has arrived.

For many, this means time to start planning your summer vacation. Hours will be spent pouring over travel brochures and websites to try and create the perfect furlough for both parents and children. You will probably speak with a tour company, get recommendations from friends, gather information and research the best attractions.

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Ultimately you will spend countless hours preparing for something that will last a week or two. Nonetheless, all this planning is deemed worthwhile if it provides you with a clear mind and allows you to enjoy your hard-earned get-away.

Planning is not just relegated to vacations; when purchasing an apartment, the average person spends a lot of time planning anything from landing the best lawyer to hiring the top kitchen designer. In our day-to-day lives, as well, we are always making plans. We plan what to have for dinner; we plan which parent is going to pick up which kid from school.

We are constantly planning.

We tend to have a goal, and we initiate a plan in order to reach that goal. The same should hold true with our finances.

Making a financial plan is essential to start preparing for your future.

Time to make a plan Stop delaying. You can always find a reason not to start your financial plan, but the longterm effects of delay can be damaging. Keep in mind, you didn’t plan your vacation haphazardly, in between helping your children with their homework.

Try to understand where you are currently and where you would like to be in the future.

Try and figure out your anticipated income over the next few years. Take into consideration any bonuses or raises you might receive, the freeing up of supplementary training funds, as well as any inheritances or major gifts that might be on the way. Then, in calculating your expenses, don’t forget to include any large bills or upcoming expenses.

Once you know how your money is being spent, make sure that your future responsibilities get top priority. In addition, each month, before you pay your bills, allocate yourself a fixed amount of money to save. If you don’t consider your retirement/savings/future-needs fund as important as your other bills, chances are deposits won’t be made as frequently as they should.

Your financial trip Developing a financial plan is like designing a travel itinerary.

For the latter, first you decide where to go, and then you figure out which sites you want to see. For the financial plan, before you choose which specific investments you want to own, you need to decide where you’re going and how you can best get there. We are all familiar with the phrase, “Don’t put all your eggs in one basket.”

The asset allocation model is a tool that can help with this decision. As implied by the name, asset allocation is the process of determining how your investment portfolio should be invested among the different asset classes (cash and cash equivalent, income and equities), based on your risk tolerance and your financial goals. It involves diversifying or spreading your investments across these asset classes in order to maximize potential returns while minimizing risk.

Many studies have shown that having a realistic assetallocation model is one of the main factors of success for a financial plan. Asset allocation preaches time, patience and long-term results; it is a balanced and rational approach designed to bring some order to an unpredictable economic environment. Once implemented, the primary virtues required of the investor are the patience and discipline necessary to stick to a plan.

Having an asset-allocation model can be more important than owning shares of a winning stock. Just as you would never ask a travel agent to plan a week’s vacation so you can see one specific painting, you shouldn’t ask a broker to buy the hot stock your friend recommended as your sole investment.

[email protected] Aaron Katsman is a licensed financial professional both in the United States and Israel.

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