Carnegie Investment Counsel Blog

Be Prepared: 5 Key Components to a Strong Financial Plan

Posted by Bob Carroll on Feb 2, 2016 12:00:00 PM

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Since 1907, "Be Prepared” has been the motto for millions of Boy and Girl Scouts around  the world. The expression represents the constant readiness and willingness in both mind and body to do the right thing at the right moment. You don’t have to be a scout to understand the motto applies to all of us. Here are five components of a strong financial plan:

1. Define your financial plan goals.

The importance of defining your goals is to provide a target for orienting your plan. After all, you don’t hop into the car and just start driving without knowing where you are heading (okay sometimes that does happen).

Creating goals can be daunting. Keep it simple and understandable.

  • Take some time and capture your thoughts on paper.
  • Once you have a list, organize your goals chronologically.
  • Next, prioritize and place focus on what matters the most to you.

These objectives change over time, so visit your plan frequently to make sure it keeps pace with the changes in your life.


2. Make rough cash flow projections.

Cash flow projections analyze the various “What if...?” questions that arise. For example, What if I retire at a certain age? What if I spend this much during retirement? Is my investment strategy consistent with my spending needs? Can I afford long-term care coverage if I need it?

While no one can predict the future with accuracy, it is very helpful to “test” your plan, its assumptions, and the ability to withstand unexpected events. Cash flow projections test these various scenarios.

Through this process, you will discover that the various components of your plan are interrelated. For example, your investment strategy can be directly impacted by your income needs or the length of time until retirement.


3. Assess your risks.

Risks come in many shapes and sizes. For example, will your money last? How can you pay for college and save for retirement without selling a kidney? How will you cover long-term care costs?

Some risks can be addressed through various forms of insurance. Others can be addressed as part of your plan through savings, investment strategies, and basic planning techniques. While the events we worry about may not come to pass, it is important to incorporate risk management as part of your plan.


4. Define an investment strategy based on the factors above.

Your investment strategy is important.  In many ways it is the embodiment of your financial plan.  A good investment strategy reflects the Goals you are trying to achieve.  It is consistent with the withdraw needs and time horizon outlined in your Cash Flow Projection.  Lastly, it balances the Risks you are willing to accept as an investor with the return you need.


5. Review and refine your plan regularly.

Remember that financial planning is a never-ending process. It changes as your life changes. During times of heightened volatility in the markets, it is helpful to remember that you have built a sound foundation through planning. Continue to follow these time-tested principles.

We enjoy helping people through the steps of financial planning. Contact us for a no-obligation talk with a member of our team. 


Topics: Financial Planning

Bob Carroll

Written by Bob Carroll

Bob Carroll is the Managing Director in the firm’s Cincinnati office. He actively listens and discovers what issues are most important to his client. Bob focuses on the unique financial planning and wealth management needs of his clients and their families. As a Certified Divorce Financial Analyst™, Bob has developed a specialty in helping clients before, during, and after divorce.

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