Five Tips for Creating a Financial Plan

Presented by Matthew Bungo, CFP®

Whether you are planning your wedding, honeymoon, or the rest of your lives together, financial challenges can test even the strongest relationships. It is important to set expectations about money, create a financial plan, and check in regularly with your partner to make sure you are both on the same page. Marriage is not just a romantic tying of the knot, but a financial tying of the knot to keep secured throughout your lives together. A financial plan can keep your knot secure and can keep you both on track to achieve your goals.

According to recent Schwab research, those who put pen to paper with written financial plans are more confident, more engaged with their wealth and demonstrate more positive saving and investing behaviors.

Of course merely having a financial plan doesn't cut it. It needs to be complete, realistic and actionable. At Schwab, we believe there are five key factors to consider as you unite your financial lives:

1.    Create a list of goals that that include how much you’ll need and a deadline.

If you write down your goals, you’re more likely to achieve them. Think of them as a road map to where you want to go—and make them practical and attainable. Here’s a simple two-step approach:

Step 1: Divide your goals into three categories: short term (less than one year); medium term (one to five years) and long term (more than five years). 

Step 2: Attach a dollar amount to each goal. For instance, a short-term goal might be your wedding or honeymoon. How much will it cost? The more specific you can be, the more motivated you’ll be to work toward that goal. 

2.     Review your current situation. 

Total up the amount of money you have already accumulated toward each of your goals and how it is being invested. Be sure that your allocation between stocks, bonds and cash investments is appropriate to help reach your short-term and long-term financial goals. Also consider your investment vehicles. Make use of tax-advantaged accounts for retirement savings. But avoid tapping those for non-retirement purposes, like the down payment on a home. Instead, use taxable accounts for these types of major purchase goals.  

3.     Make assumptions about your future.

For longer-term goals like retirement, consider how much you'll be contributing towards each of your goals over time. You may decide to include your partner in this plan or plan for each separately depending on your financial arrangement. The earlier you start saving, the less you’ll have to set aside each year. If you start saving in your 20s, 10% of your salary before taxes each year is a good goal. If you wait until your 30s, that number needs to bump up to 15%. Wait until your 40s, and you’ll have to put away 30-35% each year. No matter when you begin, the important thing is to stay on course. 

4.     Assess your risk tolerance.

Evaluate the amount of risk you're willing to stomach with your investments to help inform how you should allocate your portfolio between stocks, bond and cash investments. This is key to staying the course toward your goals during the inevitable ups and downs in the market. Your willingness to take on risk will and should vary depending on your various savings goals. For example, if you’re nearing or entering retirement, you probably don’t want to risk significant losses in your portfolio. Rather, you might be aiming to grow the value of your investments but also have current income needs and want relative stability. Just as an example, for those types of needs, Schwab’s moderately conservative model portfolio has 40 percent allocated to equities, 50 percent in fixed income and 10 percent in cash or cash investments. A more long-term goal may allow you to be a bit more aggressive in your allocation, but always stay diversified. 

5.     Analyze return expectations.

Based on your risk tolerance, a sound investment plan contains some sort of expectation regarding the portfolio returns. These return expectations aren't year-by-year forecasts, but represent long-term averages used in the planning process. It’s important to stay realistic. If your return estimates are too optimistic, you run the risk of not being able to retire on time or pay for a child's education. If they're too pessimistic, you may needlessly sacrifice some of your current lifestyle. To reap the most reward from your investments, try to avoid unnecessary fees and taxes. 

Financial planning is the foundation on which to build your futures with each other. Getting in sync with your finances early can help keep the honeymoon going throughout your lives together. 

Matthew Bungo, CFP®, is branch manager at the Charles Schwab in Fort Worth. Bungo has over 9 years of experience helping clients achieve their financial goals. Some content provided here has been compiled from previously published articles authored by various parties at Schwab. 

Investing involves risk including the potential loss of principal. Diversification, automatic investing and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Information presented is for general informational purposes only and is not intended as personalized investment advice as individual situations vary. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified professional. Charles Schwab & Co., Inc., Member SIPC.

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