The Private Bank

5 Elements of a Financial Plan for Effective Wealth Management

By: Curtis Fessler

Reading time: 6 Minutes

March 14th, 2024

Financial planner meeting with clients

A financial plan isn’t solely a list of your assets, a budget, or a living will. In fact, it may not even be a single standalone document. An effective financial plan is a comprehensive picture of your unique financial situation, which includes everything from your current finances to your future goals to plans for your estate. It’s a tailored strategy that serves as a guide to help you grow your wealth and maximize earnings, helps to protect your financial assets, and even helps to mitigate the effects of unexpected events, such as injuries or illness.

Although there is no all-purpose financial plan that works for everyone, there are key components to keep in mind when building your financial plan.

1. Diversified Investments

Investments—such as stocks, bonds, mutual funds, real estate, and even cash in interest-bearing accounts—are a vital part of a comprehensive financial plan. These assets generate passive income that can grow your wealth over time, helping you reach long-term financial goals such as helping your children buy a home, expanding your business, or setting up trusts for grandchildren.

Different types of investments help diversify your portfolio, which can minimize risk in any one particular area and reduce the impact of market fluctuations. It’s crucial to consider your risk tolerance, time horizon, and financial objectives when selecting your investments to ensure they align with your overall financial plan. For example, investments in the stock market may outperform a fixed-rate Treasury bond and offer a greater return—however, stocks can also decline in value, resulting in a higher risk of loss than bonds.

During the financial planning process, decide on both long-term and short-term investment strategies that are appropriate for your income, expenses, risk, and personal timeline for reaching your goals. The Private Bank’s in-house experts can provide you with the strategies to reach your goals. If you're a client of The Private Bank, your relationship manager can help facilitate this process.

2. Comprehensive Insurance

Protecting yourself and your assets is as critical as growing your finances. There are different forms of insurance available to help limit your liability in case of disaster and mitigate the impact unforeseen events can have on your wealth and assets.

In addition to health insurance, which can assist with routine medical care, there are other types of insurance to consider, such as:

  • Disability insurance is effectively an income replacement. In the event an injury or illness requires you to stop working in the long-term or short-term, it ensures your family does not need to access reserve funds or investments to maintain your lifestyle.
  • Long-term care insurance can assist with ongoing expenses, such as an in-home nurse or hospice care—this is particularly helpful to ensure these expenses do not deplete your nest egg.
  • Life insurance pays a sum of money to your chosen beneficiaries in the event of death. While life insurance can help to pay for final expenses, such as medical bills or funeral costs, it can also help to bridge the gap for your loved ones between the settlement of the rest of your assets, create liquidity, or help to offset potential tax liabilities for your estate.

It's important to consider unideal scenarios when building your financial plan. In life, emergencies happen; insurance can help.

3. Retirement Strategy

Your financial plan should also take into account the amount of income you'll need to ensure you can live comfortably after you retire and stop working. Certain factors, including your health, whether or not you’ve paid off your mortgage (or repairs your home may need), if your children are financially independent, other debt you may have, and taxes, will determine how much money you’ll need in retirement. Keep in mind that your level of discretionary spending—for example, on travel, dining out, or gifts—may increase during retirement because of the additional time you'll have to travel, explore, and socialize.

It'ss important to discuss what you want your retirement to look like when building your financial plan, so you can make adjustments to your current saving and spending habits, like increasing your 401(k) contributions, adjusting your investment strategy to include more passive income, or making extra payments on your mortgage to minimize ongoing housing expenses.

4. Trust and Estate Planning

Trusts and estate planning involves setting up legal structures to transfer your assets to beneficiaries in the event of your incapacitation or death. While trusts involve the ongoing transfer of assets, estates usually establish a one-time transfer of assets after death; both types of plan are typically best accomplished with guidance from an attorney. This process often includes the creation of a will, estimating estate and inheritance taxes, and planning philanthropic gifts according to your wishes. It may also include advance directives for end-of-life care and selecting someone to help manage your affairs, if necessary.

By strategizing with a Relationship Manager in The Private Bank for your trust and estate planning, you can better ensure that your heirs actually receive what you plan to leave them as well as manage or minimize potential estate and gift taxes they may incur.

5. Taxes

Efficient tax planning in your financial plan can protect you from unnecessary tax burdens. As tax laws change, it can be difficult for taxpayers to stay up-to-date on the latest tax strategies and available tax credits. For example, common tax deductions include traditional IRA contributions, mortgage interest, charitable contributions, health savings account contributions, and some medical expenses. By working with a Relationship Manager in The Private Bank and a portfolio manager, you can better optimize your portfolio to retain a greater portion of your money, which can be channeled towards your short-term and long-term financial goals.

There is no one-size-fits-all when it comes to financial planning. What makes sense for you may not work for someone else, and an expert can help you understand why. Working with a professional, such as a Bankoh Investment Services advisor, will help you develop a specifically tailored financial plan that can help grow your wealth, achieve your goals, and protect your assets.

Curtis Fessler is an expert in helping clients identify, prioritize and achieve their long-term goals through a variety of financial planning strategies, such as estate planning, real estate management, business succession and continuation planning and philanthropic services. Read more about Curtis and how he can help you.

This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Bank of Hawaii and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, accounting or financial professional before engaging in any transaction. Neither the information nor any opinions expressed herein should be construed as a solicitation or a recommendation by Bank of Hawaii or its affiliates to buy or sell any securities, investments, or insurance products. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. Past performance is not a guarantee of future results.

Investment products are offered and sold by Bankoh Investment Services, Inc., a nonbank subsidiary of Bank of Hawaii and a member of FINRA/SIPC. Investment and Insurance products are NOT FDIC INSURED, NOT BANK GUARANTEED, NOT A DEPOSIT, AND MAY LOSE VALUE, INCLUDING LOSS OF PRINCIPAL.

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