Build a financial pyramid to meet goals

Each individual should have a well laid out financial plan to help pursue short and long-term goals.  It is never too early — or too late — to put one in place, but the sooner you have a financial roadmap, the easier many decisions become.

So where do you start to put a plan in place? To begin with, gauge your current financial situation by putting together a personal balance sheet that lists your current income and expenses and details your assets and liabilities. This will help you create a budget to manage your short-term needs and will assist you in developing strategies to achieve your plans for the future. An independent financial planner or adviser can be a good resource to assist you in this process and in further crafting and implementing an overall plan.

Additionally, it is important to recognize that a financial plan is never static; it is a moving target.  Inevitably, things change and goals shift. New decisions have to be made and goals may have to be reprioritized. But if you have even a basic financial plan in place, decisions become easier because you will make them in the context of your long-term goals.

What are these basics that can set you on the right path? Visualize a pyramid with layers. These layers can be the steps you have to take to reach your financial goals. They build upon themselves and are interdependent as each level supports the one above it.

Building your financial future involves three steps in the pyramid.

Protection: Start with the foundation of your financial plan – protecting yourself and your loved ones from unexpected events. This is a crucial stage in the planning process and needs to be firmly in place so the rest of your plan does not falter. For example, if you are disabled for a period of time and do not have adequate disability insurance to replace your lost income, you may have to use money you had earmarked for a different purpose, such as retirement savings.  This move could cause you to make sacrifices with other financial goals, such as needing to change the date you become financially independent or your lifestyle in retirement. Other considerations at this level include planning for premature death, sickness and unexpected large expenses or loss of a job.

Accumulation: Now you can start saving for big purchases and begin creating wealth. It is important at this stage to prioritize your goals and assess the best means to accomplish them.  For example, if you are saving for a down payment on a house, it is a good idea to make sure you have paid off most of your debt and have some emergency reserve savings. Other considerations at this stage include retirement planning and college funding. If you start early, you may be able to accomplish all of your goals, but, if you are in a crunch, prioritize while keeping the longer-term goals in mind. When creating wealth through investments, we again recommend talking to a financial adviser who will help you gauge your tolerance for risk, understand and assess the time period for your investment strategy, and help you create a well diversified mix of securities.

Distribution and Preservation: The last layer in our basic pyramid is living off of the assets you have accumulated and planning for how you would like to preserve and transfer some of these assets to other people or institutions. As is the case with asset accumulation, you should have a well thought out plan for asset distribution, and you should consider a variety of strategies to diversify your risk. In addition to a financial advisor, an estate attorney can be essential at this stage to ensure that you take the proper steps to look after your loved ones.  This is especially important in the LGBT community as many states do not recognize same-sex unions.

More tips in part two of this series coming later this month.

This material is for informational purposes only and is not intended to act as specific advice.  Please talk to a financial professional prior to investing and a tax advisor for tax advice.