Nugent & Associates is a comprehensive financial services firm committed to helping you improve your
long-term financial success. Our customized programs are designed to manage your wealth by delivering an
unprecedented level of personalized service.
Imagine yourself trapped in a maze filled with twists and turns, blind alleys,
and dead ends. Wouldn’t exiting it be simpler if you had a map and compass
to guide you? Your financial life can be a maze, and a personal financial plan is
the map and compass that can help guide you through that maze.
Individuals use a variety of investment, risk management, and tax planning
strategies to meet their financial goals. Those goals change over a person’s lifetime, and a flexible financial
plan can be modified as circumstances change.
The Nature of Personal Financial Planning
Personal financial planning helps individuals and families reach goals that
require money to achieve, such as having adequate retirement income or
resources to cover college expenses. With good planning, most people find
they can achieve their desired standard of living and meet their financial goals
in a timely and orderly fashion.
Many people conduct financial planning on an ad hoc basis. For example,
parents may fail to put aside money for a child’s college education until the
child’s final year in high school. A family may begin saving for the purchase of
a home but then have to divert the savings to the expenses of daily living following a job loss. A father with
young children could fail to plan adequately
for the death of his spouse and have to suddenly adjust to unforeseen child
care expenses. A sound financial plan can reduce or eliminate the financial
stress of these situations.
Comprehensive personal financial planning focuses on allocating resources
toward the achievement of financial goals in a systematic manner. Goals are
first established and then prioritized. Once the set of priorities is determined,
individuals can develop plans to meet those financial goals in the desired
Financial goals often create conflicts because individuals have limited
resources to achieve their goals. Resources devoted to current consumption
are resources that will not be available to fund future consumption. This year’s
dream vacation takes away funds that could be used to provide for retirement.
However, some financial goals can be complementary to one another. Under
current tax laws, certain forms of retirement savings can also be used for the
purchase of a first home or for college expenses. That means that savings put
aside in a retirement savings account may be available to meet other goals.
Financial planning is a continuous process, because goals and priorities
change over time. An individual or family may meet one financial goal sooner
than expected and then be able to divert resources toward other goals, or an
individual or family may be unable to meet a goal and have to adjust priorities. For example, a family setting
aside 20 percent of every paycheck in a
retirement account may suddenly need to provide in-home care for elderly
parents. That change in priorities would require diverting funds from future
consumption to current consumption.
Throughout the financial planning process, individuals and families must
remain aware of the effect of current tax policies on the financial plan.
Changes in tax policies may require that priorities be rearranged or that financial plans be altered. Risk
management planning is also an important element
of financial planning, and risk management planning and tax planning affect
Successful financial planning is a process that integrates all of these diverse
elements into a coherent and dynamic road map for achieving financial goals
over an entire lifetime.
Personal Financial Planning Goals
Before developing financial action plans, an individual or a family should
establish personal financial goals. After establishing these goals, priorities for
the goals are determined to guide decisions regarding the timing for achieving
those goals as part of the overall comprehensive financial plan.
For example, suppose a family has two goals. First, it wants to fund the college education of two children.
Second, it wants to save money to purchase
a retirement home after the children complete college. The family will not
purchase the retirement home before the children graduate from college.
Therefore, establishing and building the college fund takes priority over
establishing and building the fund for a retirement home. If the family cannot
begin to fund both concurrently because of budget constraints, the comprehensive financial plan will first focus
on the college fund and, once that goal is
achieved, will shift focus to the retirement-home fund.
Financial goals and the priorities attached to those goals differ by person and
by family and also change over time. For some people, improving their current
standard of living is the most important financial goal. For others, saving for
retirement is the primary financial goal. Improving their current standard of
living might be an additional, but secondary, financial goal. However, most
people have these basic financial goals throughout their lives:
Provide for the basic essentials of living (food, clothing, and shelter).
Basic living expenses must be met before other non-essential goals are
Protect against loss of income or wealth caused by injury, illness, or death.
Risk management techniques are essential to protect the individual or
family from losing the gains they have already achieved.
After providing for these basic financial goals, other financial goals may
Paying off student loans or credit card debt
Purchasing a home or making other major asset purchases
Funding college expenses
Saving for retirement
Finally, individuals may establish goals related to the distribution of their
assets after death. Estate planning goals may include providing for the future
care of disabled dependents, passing wealth on to future generations, or providing funds to favored charities.
Feel free to review the topics below to better understand how Nugent & Associates can help you.