River Hill Magazine: The Personal Financial Plan – An Indispensable Tool for Enhancing Long-term Financial Well-Being

The development of a personal financial plan for yourself or family provides the framework for a flexible, dynamic plan of action offering the following benefits:

1. Keeps the focus on immediate, intermediate, and long-term financial goals.

2. Potentially cuts income taxes, improves cash flow, and reduces the cost of debt service.

3. Establishes a suitable investment policy consistent with goals to balance risk and return.

4. Minimizes or eliminates the risk of unanticipated financial disaster.

5. Helps minimize the risk of prematurely depleting assets during the golden years.

A sound financial plan can have a significant impact on long-term financial well-being. The sections typically addressed in a personal financial plan are:

1. Financial Summary

2. Tax/Cash Flow/Debt Management

3. Investment Portfolio Review

4. Retirement Planning

5. Estate Planning

6. Risk Management – Insurance

7. Education Funding Analysis

It is quite common for a financial plan to contain as many as 10-20 or more specific recommendations or action items. A single page implementation checklist serves as the first page of the plan providing a bullet-point summary of the key recommendations. A “thumbprint” example of our Financial Planning Checklist is illustrated due to publication space constraints.

Personal Financial Plan Checklist

Personal Financial Plan Checklist

It is important to prioritize the action items and begin to implement the plan promptly. A plan that sits on the shelf and is not acted upon is worthless. After the initial plan has been completed, it is not necessary to go through a thorough financial planning exercise annually.

A particular section or module of the plan can be updated as major changes occur. For instance, the addition of a new family member requires an estate plan, education plan, and risk management review. Other typical life events that call for an update to a plan are a change in marital status, an employment change, a death in the family, or a special needs analysis such as when a family member becomes terminally ill.

Some people prefer to develop a financial plan one module at a time in an ad-hoc manner.  This is better than not planning at all, but has the following disadvantages:

1. Some sections of the plan may be overlooked and never addressed.

2. The sections of a financial plan are integrated.

This means that decisions made in some areas can have a significant impact on other areas.  It is for these reasons that a more comprehensive personal financial plan is recommended for those who have never been through the process.

This is article appeared in the December 2014 issue of River Hill Magazine
Copyright © by PARR Financial Solutions, 2014.
Please feel free to Contact Us if you have any questions, comments and/or wish to receive a copy of the Financial Planning Checklist.

River Hill Magazine: Lessons From A Homeless Shelter – Timeless Tips for Financial Self-Sufficiency

This item is based on a personal experience that actually took place in 1993 as my financial advisory practice was just getting started.  The lessons have clearly stood the test of time and are still relevant:

After attending a seminar sponsored by a local nonprofit, career networking organization entitled Reengineering Your Finances for a Smooth Career Transition”, a man named Mr. Booker approached the guest speaker, a young financial adviser, and asked if the adviser would be willing to speak to his organization. The adviser routinely mentioned that he spoke regularly at career fairs, civic organizations or to local investment clubs. When the adviser asked for the name of the organization, Mr. Booker replied, “The East Oakland Community Project.” The adviser agreed to make the presentation and asked for a date. Mr. Booker mentioned that he was not the contact person for the organization, but he would put an officer from the organization in touch to schedule.

At that moment, the adviser suddenly realized that Mr. Booker’s organization was a homeless shelter in the heart of the Oakland, California projects, one of the toughest neighborhoods in the country, and that he was asking the adviser to address a group of about fifty homeless residents. Furthermore, Mr. Booker identified himself as one of the shelter’s residents! The adviser immediately wanted to know, “what good could it possibly do to talk to homeless people about their financial matters.” The content of the presentation covered the basic building blocks of sound financial management including setting goals, budgeting, establishing adequate liquid emergency reserves, sound debt management strategies, and tracking household net-worth. Unfortunately, from the adviser’s perspective, a homeless audience, by definition, is not in a position to focus on any of these issues. Their needs were perceived to be at a much lower level of basic survival according to the classic Maslow’s Hierarchy of Needs.

Mr. Booker’s offered these three financial rules to follow that he summarized from the presentation that he had just attended. He correctly perceived that these rules could apply to all:

1. Wealth is accumulated gradually over time.
2. In order to accumulate wealth one must understand the concept of delayed gratification.
3. All people, both poor and wealthy, need to practice sound money management principals.

The adviser agreed to do the presentation. It was certainly an experience outside of the general comfort zone of the adviser and required the adviser to meet at 7:30 PM at the shelter. From the adviser’s perspective, there were Maslow Hierarchy issues of basic survival as well!

Although this lesson took place several years ago, the essence of Mr. Booker’s words of wisdom recently appeared in the recent best seller “The Millionaire Next Door”. The authors, Stanley and Danko, studied a broad sample of the affluent market and reached this conclusion: “The key to building wealth is not luck, inheritance, advanced education, or intelligence. Wealth is accumulated by hard work, careful planning, self-discipline, consistency, and personal sacrifice.”

Mr. Stan Booker is to be commended for challenging the adviser to make the presentation at the East Oakland Community Project. The adviser was able to broaden his perspective and dispel the incorrect assumptions that he and the general public have about the homeless. Being able to make a positive difference in several lives rewarded the adviser. Creating a positive change in just one person was enough to make this endeavor worthwhile.

This is article appeared in the July 2014 issue of River Hill Magazine
Copyright © by PARR Financial Solutions, 2014.
Please feel free to Contact Us if you have any questions or comments.

Financial Planning Magazine – Safer Strategies for Leveraged Investing

Christopher P. Parr comments on leveraged investing in Financial Planning Magazine :  “My advice to clients over my 20-plus years has always been to never buy on margin,” says Chris Parr,  who heads Parr Financial Solutions, a wealth management firm in Columbia, Md. “You should not invest what you don’t have.” Several planners agreed that margin loans have a place – but that place isn’t in the stock market.

Read full article here.


Baltimore Sun – Wall Street Shrugs Off Sequester

Christopher P. Parr, when interviewed by Baltimore Sun columnist Eileen Ambrose on whether Wall Street ignoring political drama in Washington is the new norm, said “Wall Street has gotten ahead of the game.”

“Sure, there are positive signs, Parr said, but the economy’s annual growth rate will be cut by at least half a percentage point once the sequester cuts are in force. That’s significant, given the current modest growth rate,” he said.

“I’m more worried about: Is this the time to dump fresh money into the market?”

The Business Monthly: Five Steps to Prepare for Tax Uncertainty

In this article, Christopher Parr provides five steps to prepare for major or potential income and investment tax changes for the 2013 tax year.  He first explains the several earned income-related changes and the investment income-related changes that require monitoring and planning as the status becomes clearer.  Earned income-related changes include employee social security, Medicare payroll and self-employment tax.  An investment income-related change is the favorable Bush-era tax rates on investment dividends expire and reset.   In the attached chart, find A Recap of Key Tax Law Provisions and Rate Changes provided by Parr Financial Solutions.

Feel free to contact us if you have any questions or comments.

Christopher Parr CFP® is founder of Columbia-based Parr Financial Solutions Inc., a fee-only wealth management firm.