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Pyramid of Successful Financial Planning

Pyramid of Successful Financial Planning

| October 16, 2018

Being in the financial services business for the last 16 years has allowed me to have many conversations with individuals about where do they start when it comes to planning for their financial future.  I have used this picture since Day One in this business.  I truly believe that all financial plans need to start with a solid foundation.  Some advisors like to speak to their clients about Roth IRA’s or 401k plans before they start discussing insurance based products.  I strongly disagree with this approach, because if you do not have a solid foundation in place your $50 Roth IRA contribution isn’t going to help much in the event you can’t go to work for the next 6 months or don’t come home from work one day because you were killed in a car accident. 


We work with our clients to help them take care of the worst case scenarios first.  In my humble opinion your foundation consists of life insurance, health insurance, disability insurance, and home and auto insurance.  If you don’t have these things taken care of you run the risk of having your entire financial world flipped upside down in an instant.  There are lot of factors that go into which type of plan you decide use to fill this void, but it is vital that you address these issues before you worry about the accumulation steps.  Just think about it, what would your family do if you suddenly took on $100,000 in unforeseen medical expenses?  Or how about if you were unable to go to work for the next 2 years?  What if you didn’t come home one evening and state patrolman showed up on your doorstep with really bad news for your spouse and children?  Or what if you were in a car accident and it was your fault and you come to find out you had only the state minimums for liability insurance?  All of these things could result in complete financial failure.  Starting with your foundation addresses all of these needs and is why we feel strongly about taking care of these needs first when working with our clients.


Once you have your foundation established you can start working on the accumulation phase of your plan.  This consists of both short term and long term accumulation plans.  Most prospects we work with have no idea where they should be saving money or how the tax ramifications work on certain plans.  You need to have a clear understanding of what the different types of plans can do for you and how pulling money out from those plans can impact your tax situations.  The most important part of this stage is that you are saving money.  Too many people are spending more than they are saving and if you want to be able to do the things you never thought you would be able to do you need to save the money today to give you that opportunity down the road.


The last stage in the financial pyramid is the distribution phase.  We see more people that don’t have a distribution plan in place and end up giving too much money to the Internal Revenue Service or a Long Term Care Facility.  Proper planning can help minimize the interests of others and help maximize your family interests.  We help families and business owners everyday understand the consequences they are facing with the current plans and help give them ideas on how they can improve those situations.


There you have it folks, financial planning doesn’t have to be as hard as what some people make it out to be.  Start at the bottom just like you are building a house and work your way upwards.   Don’t get caught up in excitement of accumulation plans before having your worst case scenarios taken care of.  Once you are ready to move to accumulation, save, save, save.  Finally, when you are nearing the end of your working years start thinking about how your distribution plan will come together to maximize your family interests and minimize the interests of others.


Securities and Investment Advisory Services offered through Royal Alliance Associates, Inc. Member FINRA, SIPC, a Registered Investment Advisor. Johnson insurance is not affiliated with Royal Alliance Associates, Inc. 1567 13th Street Belle Plaine, IA 52208.