What Are the Key Components of a Financial Plan?

Ken Hargreaves, CFP®, AIF®, AWMA®, CRPC®

As a Certified Financial Planner (CFP®), my role extends beyond simply managing investment accounts. Investing is indeed a significant part of your financial life, but it’s just one aspect among others, including taxes, estate considerations, and retirement planning. When we combine all of these aspects, we have a comprehensive and holistic financial plan, giving us a bird’ s-eye view of your financial life and allowing us to fine-tune and tweak as necessary to optimize your finances. 

In this article, we will examine each part of your financial plan independently and see how they all work together to improve your financial situation. 

Establishing Your Goals and Objectives

How can you set down the path to achieve something if you don’t know what it is you’re trying to achieve? Laying out clear goals and objectives forms the anchor around which all other parts of your financial plan revolve. Let’s examine one standard timeframe: 

A couple in their late 20s with a newborn baby:

14 Jun 2025
14 Jun 2025

Build Emergency Fund

01 Aug 2026
01 Aug 2026

Purchase a Family-Friendly Car

29 Aug 2029
29 Aug 2029

Buy a House

30 Aug 2030
30 Aug 2030

Buy a Boat

02 Aug 2042
02 Aug 2042

Pay for College

06 Aug 2049
06 Aug 2049

Pay for Child's Wedding

01 Aug 2054
01 Aug 2054

Retire

Naturally, other goals can appear, and your life situation may change, which is why our plans should be flexible. Your personal plan should also align with your own values and priorities, such as growing your family or focusing on traveling rather than upgrading your home. 

Determining Your Investment Strategy

You have a general understanding of your goals and the timeline for achieving them, and now you can construct an investment strategy that will increase your chances of successfully reaching those goals safely. 

Each goal should have its own mini portfolio and investment strategy based on your risk tolerance and timeline. For example, if you plan on buying a new car in two years, purchasing high-volatility stock may help you buy that car on time, but you also run the risk of having less money than you started off with if a market downturn occurs.

Investment Portfolios Based on Goals

Short-Term Portfolio

Short-Term: Buy a Car in 2 Years

Long-Term Portfolio

Long-Term: Retire in 30 Years

For Educational & Visual Purposes Only: Your Results Will Differ

For your retirement, you have much more leeway in holding aggressive growth-focused investments in your portfolio for longer, potentially giving your assets the time necessary to generate enough compound interest to bring you through a long, prosperous retirement. 

Where your assets are located is crucial. Utilizing multiple investment accounts allows you to invest in the right account for your specific goals. For instance, if you plan on buying a house in 10 years, it’s better not to save for that within your workplace 401(K) account, as you could face penalties and sizable tax bills when you make a withdrawal. If college expenses are on the radar, a 529 plan can be used for tax-free growth and withdrawals, potentially easing your tax burden as well.

Creating a Tax Plan

Your investment plan should go hand in hand with your tax plan, as the investment account where you purchase your investments will directly impact your tax liability. 

Without a customized tax plan, it’s easy to overlook taxes and let things run on autopilot, taking the tax deferral on 401(K) contributions, never making post-tax Roth contributions (let alone Roth conversions), and withdrawing as much as you feel you need in retirement without considering the tax implications. 

A tax plan helps you optimize your current year’s tax deductions while considering future tax bills and tax-free income. A careful balance of traditional contributions and post-tax contributions can help you reduce your tax bill now (potentially even keeping you in a lower tax bracket) while also providing you with greater tax diversification in retirement when you can withdraw just as much as you need from each account without bumping up a bracket (or even completely avoid a tax bill). 

Without carefully analyzing your investments and how they pertain to your lifelong tax burden, you may end up giving the IRS more than necessary and possibly reducing your potential investment returns by hundreds of thousands of dollars, if not more.

Insuring Your Assets

Insurance may seem like just a drag on your budget, but it’s necessary – unfortunately, the chances are that an unexpected financial burden will appear at least once in your lifetime. For example, today’s youth face a 20% chance of becoming disabled before retirement. That could translate into a significant loss of income, workplace retirement plans, and other benefits. An insurance policy helps to transfer that burden, and others, to the insurance company, helping protect your savings from being depleted prematurely. 

Life insurance specifically can help replace a lost income if the unthinkable were to happen. Unfortunately, Americans are severely underinsured in this arena, with fewer than half of American millennials claiming ownership of a life insurance policy. For many, the issue isn’t financial – it’s because the process can be overwhelming and confusing, which is understandable considering the convoluted terms and conditions set forth by insurance companies, and if you’re not careful, you could end up purchasing coverage you don’t need, driving up your premiums. 

That’s why it’s so important to incorporate insurance into your overall financial plan and get the assistance of a financial advisor who can guide you through the process with clear terminology, ensure you have the right amount of coverage, and help you keep costs low. 

Defining Your Retirement

Now we get into the good stuff—retirement. What does your retirement look like for you? Do you jetset around the world, go on cruises, and spend lots of money? Do you downsize your home and stay close to family? Do you split your time between northern and southern states or perhaps even move to another country? 

Whatever your goals are, your financial plan should reflect that, as long as they’re realistic. If you plan on spending more for longer, perhaps you should put more money aside each month during your working career and be a bit more aggressive for longer. If you’d rather focus on enjoying life now and plan on slowing down in retirement and taking it easy, maybe you don’t need to put away so much for it.  

After determining your annual expenses and figuring out ways to achieve those goals via your different retirement savings vehicles, it’s time to determine how much and when to withdraw from each account while keeping taxes as low as possible. However, this likely occurs closer to retirement when the status of your accounts is more evident. 

Your retirement plan should also factor in the five retirement risks: 

  1. Inflation
  2. Longevity
  3. Volatility
  4. Taxes
  5. Early Death

Yes, retirement is risky—in many ways, riskier than your working career because you’re now solely depending on what you have built up over the years, likely without any further contributions. Plus, many of these factors are highly unpredictable, making it challenging to precisely account for them—which is why we need a plan for every possible scenario. 

Drafting an Estate Plan

When people think of estate planning, they often think of wealthy families with multiple business interests and literal estates across the country. While those sorts of folks certainly do need estate plans, you do, too. The parts of an estate plan may surprise you: a will, a power of attorney, a trust (not just for the wealthy), medical directives if you were to become incapacitated, and determining beneficiaries. And yes, these all belong in your financial plan. 

An estate plan is especially vital for young families; determining who would care for your child or children if the unthinkable were to happen should be your top priority. The last thing you want is for your child to become tangled up within the foster care system. 

Estate planning can also help you keep your taxes to a minimum at every stage of your life via a combination of trusts and charitable donations, as well as reduce your taxable estate upon your passing. With the Tax Cuts and Jobs Act expiring at the end of 2025, it’s vital to ensure your trust and financial plan consider the sweeping changes that are more than likely to occur, including reduced estate tax thresholds. If you’re concerned about the negative implications of TCJA’s sunset on your financial plan, don’t hesitate to reach out. 

How It All Comes Together

Each component of your financial plan doesn’t exist in isolation; they are interdependent and collectively influence your overall financial health. Your investment strategy impacts your tax situation, as different accounts have various tax implications. Meanwhile, your tax plan affects your investment returns, as minimizing taxes can increase the amount you can reinvest.

Insurance safeguards your assets, which in turn supports your investment and retirement strategies by protecting against emergencies, allowing your investments to grow unhindered by unexpected withdrawals. Estate planning gives your wishes legal protection while also having multiple financial and tax benefits. 

Going it alone may be possible but highly unlikely. Each component of your financial plan requires expert advice, possibly entailing consulting with multiple professionals to cover every aspect of your plan. A financial advisor can help you in multiple ways, including references to trusted lawyers and tax experts, while helping ensure your plan fits together after everything is said and done. 

If you’d like to craft or review your financial plan, WealthGen Advisors is here to help; just click the button below!

Disclosures

Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. All investment strategies have the potential for profit or loss. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author/presenter as of the date of publication and are subject to change and do not constitute personalized investment advice.

A professional advisor should be consulted before implementing any investment strategy. WealthGen Advisors does not represent, warranty, or imply that the services or methods of analysis employed by the Firm can or will predict future results, successfully identify market tops or bottoms, or insulate clients from losses due to market corrections or declines. Investments are subject to market risks and potential loss of principal invested, and all investment strategies likewise have the potential for profit or loss. Past performance is no guarantee of future results.

Please note: While we strive to provide accurate and helpful information, we are not Certified Public Accountants (CPAs). The information in this article is intended for informational and educational purposes only and should not be interpreted as tax advice. It is crucial to consult with a CPA or tax professional to discuss you

Author

  • Ken Hargreaves, CFP®, AIF®, AWMA®, CRPC®

    A Florida native, and full-time Sarasota resident, Ken founded WealthGen Advisors, LLC after spending more than fourteen years in the financial advisory industry. Ken holds multiple industry designations, as well as a master's degree in Financial Planning. Prior to founding WealthGen Advisors, Ken spent almost a decade in New York and then Texas as Vice President at The Capital Group, a $2T global investment manager serving institutional clients and pension funds.

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