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Financial Planning: An Introduction to Four Planning Areas

Financial planning

The first step in getting help with financial planning is deciding which area of your finances need attention. This allows you to zero in on resources that will be useful to you and to find a financial planning professional who specializes in the relevant area. For example, if you’re a parent who intends to send your kids to college, you may benefit from college planning. Retirement planning is important for anyone of working age, while estate planning caters to people who are near the end of their careers or in retirement and who have savings or property to leave to their heirs. And tax planning is for those who have significant income that results in a high tax bill.

Here’s an introduction to these areas of financial planning.

College Planning

The purpose of college planning is to prepare to fund a child or grandchild’s college education. This form of planning involves determining how much money the student will need and choosing an investment account such as a tax-advantaged 529 plan. You choose an initial amount to invest and set a schedule to continue contributing until the student is ready to attend college. College planning may also include exploring other possible sources of funds for education, like student loans.

Retirement Planning

Retirement planning involves deciding on a target retirement lifestyle and then making investments that will support your desired lifestyle. Investopedia explains that the focus of retirement planning depends on your age: Younger workers need to plan to save enough and to select profitable investments, but those who are closer to retirement have to decide at what age to retire and to choose a residence in a place with an affordable cost of living.

Estate Planning

The goal of estate planning is to arrange to transfer wealth to a person’s heirs. The first step in estate planning is writing a will, which names the people you want to inherit from you and also states who will serve as your estate’s executor, as CNN Money explains. Other aspects of estate planning are setting up a trust and purchasing life insurance.

Tax Planning

The purpose of tax planning is to minimize the amount you are required to pay in taxes while still complying with tax laws. It is essential that this planning use only those means of lowering a tax bill that the law allows, such as setting up a tax-advantaged account for retirement savings. Making otherwise unnecessary investments simply to escape taxes or withholding financial information from the IRS are illegal actions that carry serious penalties.

The above are four planning areas that people often need help with, but there are several other kinds of planning that financial advisors can focus on. For example, some financial planners specialize in risk management, while others advise people on dividing assets after a divorce.

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