What Your Financial Planner Needs to Know About You

One of the questions I commonly get from people is about what information to bring to a financial planning consultation.  In my own meetings with employees, some people come with spreadsheets or even thick binders of information while many bring nothing at all. In both cases, they often have no idea what information is relevant and useful in making financial decisions. Whether you work with a planner or manage everything on your own, here is some information that you’ll want to have at your fingertips:

Goals: We’re bombarded every day with marketing and sales messages from people trying to tell us what to do with our money. The first step in taking back control is to decide what’s most important to you. What are the short and long term goals that you’d like your money to help you achieve? Think about some dreams to shoot for as well as some more modest outcomes that you’d be satisfied with.

Take home income: This sounds obvious but you’d be surprised by how many people have no idea how much they take home or even how much they make before taxes. It’s hard to make a plan if you don’t know how much you have to plan with.

Expenses: Managing your cash flow is the foundation for everything else because it determines how much you will have available to save for the future and pay down debt. You may be tempted to estimate this but it’s better to get a breakdown of your actual expenses. If you’re like most people, that exercise alone can be a real eye-opener when you see where your money is going. Start by looking at the last 3 months of your bank and credit card statements and record your expenses by category on a worksheet like this to get an average. The tougher part will be figuring out where your cash goes. If you don’t do so already, start tracking your cash spending by writing it down or keeping receipts. (Alternatively, you can just use your cash for one type of expense like food and entertainment so you know that whatever you took out of the ATM was spent in that category.) You can also use  a site like Mint or Yodlee to track your spending for you but you’ll still need to enter your cash expenses yourself. Finally, don’t forget to include non-monthly expenses like vacations, holidays, and non-monthly bills like certain taxes and insurance premiums.

Insurance: You’ll want to know at least the general amount of coverage for life, disability, and long term care (don’t forget to include benefits you have at work). Otherwise you may not have adequate coverage and by the time you or your family will need it, it will be too late. It’s also a good idea to know what you’re paying on these policies plus your health, property, and casualty insurance as well so you can routinely shop for a better deal.

Debt: Have a record of the balance, interest rate, payment, and payoff date for each of your debts. This will allow you to develop a strategy to pay them off in a way that saves you as much interest as possible and gets you debt free the fastest.

Savings: You just need the balances and maybe the interest rates. Not having enough could leave you unable to pay your bills in an emergency or force you to sell long term investments at a loss, take a penalty on a retirement plan distribution, or pay an exorbitant interest rate on a short-term loan.

Estimated home value: If you haven’t had a recent appraisal, you can get an estimate on sites like Zillow. Home equity can be a relatively low cost source of credit when you really need it so it’s not a bad idea to know how much you have available.

Employer stock incentive plans: If you have stock options, restricted stock, stock appreciation rights, or an employee stock purchase plan, you’ll want to know what you have and what the terms of ownership are. Otherwise, you can lose opportunities to take a gain or diversify your holdings before a big loss.

Retirement plan information: Do you have a Roth option? How much are you and your employer contributing, including matching funds? What investment options are available to you? Do you have access to financial advisory programs like Financial Engines? The actual investments you have are less important since you can generally change them without taxes or fees. It’s more important for the planner to know how much you’re saving and what your investment options are.

Outside investments: Outside investments are another story though. Since there may be taxes and other costs involved with making any changes, it’s best to have your most recent statements with cost basis information if possible. This can help you and your planner devise a portfolio that makes sense from both an investment and tax standpoint.

Risk Tolerance: Speaking of investment decisions, you can’t (or at least shouldn’t) make them without knowing your comfort (or discomfort) with risk. Your planner likely has their own questionnaire to determine that but you can fill this one out just in case.

Pension projection: If you’re fortunate enough to have a pension, you should be able to get a projection of your future benefits from your HR department. Be sure to know whether the numbers are in today’s or future dollars.

Social Security estimate: They no longer mail out statements each year but you can get yours online. Don’t forget your survivors’ benefits since they can reduce the need for life insurance.

Estate planning documents: It may be useful to know at least what type of documents you have and when they were written. Outdated documents may be even worse than nothing at all since they can lull you into a false sense of security and eventually cause a lot of family strife.

This may not be all-inclusive, but it’s a pretty good start to address most of the financial questions people tend to have. Even if you have no intentions of doing any planning right now, it could help you down the road to have this information stored and organized somewhere. In fact, just the act of collecting it can be helpful by giving you a better picture of where you are financially and what you may be lacking. That may make you decide to meet with a planner after all.

 

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