Rather than aim for simplicity, aim for synergy. Personal finance is unique to each person. Facing your financial situation and working on or through your financial plan is a time-consuming, thoughtful process. Elements of your financial situation may feel complicated because they are new, unknown, or challenging. Yet, once you understand those elements of your financial situation, have a plan to address them, and go through the steps of making your plan a reality, your experience with your financial situation may feel less complicated but present as overwhelming.  

What are some elements in personal finance that may be new, unknown, or challenging? In financial planning, there are generally seven key areas: general principles of financial planning, education planning, risk management and insurance planning, investment planning, tax planning, retirement savings and income planning, and estate planning. Each key area includes subsets of additional data, but for the purpose of this article, we’ll approach the data from a bird’s eye view. 

General principles of financial planning include identifying assets, liabilities, cash flow, debt management, and attitudes or behaviors about money. Education planning involves identifying strategies for navigating the costs of education. Risk management and insurance planning includes evaluating current insurance policies and coverage amounts. Investment planning involves examining your comfort level with different types of risks as they relate to your investments. Tax planning involves considering the potential consequences of a variety of actions that may have an impact on your tax situation. (Consulting with a tax professional may be recommended.) Retirement savings and income involves identifying how much money you need to save prior to retirement to have the income needed to cover your retirement costs. Estate planning involves considering the potential consequences of a variety of actions that may impact your financial legacy. (Consulting with an estate attorney may be recommended.)

When you consider the seven key areas, consider how they are connected. For example, knowing your monthly cashflow of how much you earn and spend (general principles) is requisite for knowing how much you may set aside for education, insurance, and investments. Conversely, knowing how much you spend now (general principles) helps you to identify how much you may spend in retirement (retirement income) which may be impacted by how much you may pay in taxes when you retire (retirement savings, tax planning) which may then impact your financial legacy (estate planning).

Why consider synergy over simplicity? In a world where less is more, you may be attracted to the promise (of a product or person) to simplify your financial situation. But at what cost? Consider investing. There are a variety of approaches to investing. One often touted approach is to use a specifically low number of securities (usually mutual or index funds) to achieve a particular rate of return. The thinking is that, if you own these securities, you will be better off than investing in individual securities on your own or paying an investment advisor because the creator or salesperson of those securities is an expert. Yet, what is the cost of choosing a mutual or index fund? (Usually, a commission or expense ratio.) Who gets that money? (The money manager and perhaps a salesperson.) What, exactly, are you getting in return? (What is your financial plan? Did the salesperson help you with the plan? When you have questions, are you able to speak directly with a person?) Do you know the rate of return you need to support your specific financial goals on your specific timeline? If the investments are for retirement, is the mix of securities appropriate for you? (Based on your age, your expected expenses in retirement, rate of inflation, number of years you are likely to need financial support in retirement, what is an appropriate rate of return for your financial situation?) These are just a few questions to consider when faced with the promise of simplicity, particularly in relation to your investment dollars. 

Whether you choose to create a financial plan on your own or work with a fiduciary financial planner for support, understanding the interdependence of the seven key areas may help you to appreciate the synergistic qualities of personal finance and, by aiming for synergy rather than simplicity, you may experience less stress about your financial situation.    

Wendolyn Forbes is a CERTIFIED FINANCIAL PLANNER™ with Wealth Transition Finance, A Member of Advisory Services Network, LLC. Wendolyn is a fee-only financial planner and member of the National Association of Personal Financial Advisors (NAPFA). For more information, please visit her website at www.wtf-asn.com.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP® (with flame design) in the US, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

This material is provided as a courtesy and for educational purposes only. This material does not constitute a recommendation or solicitation or offer of the purchase or sale of securities. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Consult your own legal or tax professional for information concerning your individual situation.