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Financial Planning

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Sample Essay on Financial Planning

It is vitally important for the individual to set up a personal financial plan in order not to experience hardships and financial difficulties in the future. Financial plan assure financial stability and financial freedom that one wants to possess till the end of his/her life. The following essay will speak about the role of the financial planning for the retirement years and will state that people without financial plans face substantial pain/suffering/unhappiness in their retirement years.

The process of developing a sound financial plan is a routine process that indeed involves not only careful financial analysis of the person’s current situation and long-term commitment to implement and monitor that plan throughout his/her life, but also requires careful thinking for the future. In order to properly achieve the financial planning goals, one has to monitor the performance of the financial plan as well as make proper changes when necessary. Thus, in order for the plan to remain of use for the person and not a fortune for financial advisors, one has to make it user-friendly and elaborate.

For example an article How to manage your money, noted that one is not able to compete well without the resources and thus has to read a lot about the market (Macklem, Katherine, 2004). One should weigh all the pros and cons of mutual funds namely, criteria for selecting stocks, the fund managers, and track record.

Katherine Maclem (2004) states that one should do the homework to assure profitability of one’s investment (abstract Para 1). One should understand that professional investors also get wrong, as it was the case with Larry O’Brien who advised his clients to sell tech stocks while he was buying and holding them. As result of such unfortunate trick he lost over $2million.

One should understand that over a long period of time, the stock market raises thus one should understand that if investing in all market (market indices) one has only the opportunity cost to lose.

One should understand, according to the article that stock market isn’t the only investment opportunity and real estate indeed sometimes can be rather profitable. The article notes a case with a woman who after spotting an arbitrage opportunity with a triplex used it to buy the building and lease two out of three flats to pay for that building (mortgage). With time she would acquire the fourplex and six-piece building and keep investing money in these (strangely) never-ending arbitrage opportunities.

From the information contained in this article one can understand that people without financial plans are at a great financial disadvantage compared people with sound financial plans. Thus, if happiness comprises financial security and strength, while pain/suffering usually means the lack of happiness, we can say that people without financial plans indeed incur more suffering compared to whose who have plans, based on this monetary constituent of happiness.

Another useful piece of information one learns from the article titled “Creating a retirement paycheck”, that advises how to manage one’s individual retirement account not to run out of money before one runs out of time (Updegrave Walter, 2004). Updegrave (2004) advises that one should take an initial draw of about 4% and then increase it to adjust for inflation, let alone adopt a strategy that would combine annuities and mutual funds (Para 3). Annuities therefore act as insurance policies where one gives a sum of money to the insurer in return for regular payments until one’s death. The article states that one should certainly buy both an annuity and a portfolio of stocks that together present a diversified investment opportunity for the retired. The article appears to stress the human factor associated with keeping the money in a bank-they almost always end before the person dies probably because a person is not able to control his/her desires and spends it all. Apparently, those who are retired and possess little to no money aren’t able to afford luxurious trips to Europe or Florida and typically because of desperation reserve to drinking. As far as one can understand it, the lack of planning for the retirement indeed causes pain and suffering for the bad planners. Annuity or a combination of annuity and stocks, on the other hand appear to present some hurdles to overcome in order to get broke, thus those who invest in several investment options usually end up with money on their accounts.

The article once again stresses the need not to annuitize all one’s assets at once just in case one changes his/her mind and because one should try to annuitize his/her money in times when the interest rates are high to assure a lifetime of high payments. One should also attempt to use both fixed-payout annuities and variable payout annuities that despite their pros and cons together are able to provide an individual with the very investment structure needed for retirement.

Failure to plan properly for the future appears to be against the natural laws for conservation that can be seen in the behavior of the majority of insects (bees, ants), and animals (squirrels, hamsters, rats) who save food for the rainy days with hopes to enjoy it when they are not able to get as much food as they want to. Saving for the retirement present the same type of savings when one is no longer able to save for one’s own expenses be they related to entertainment, health or care. Without these financial reserves that can exist only with the proper financial planning, one is likely to have/afford fewer choices and therefore, is to incur suffering and pain: both physical and mental.

The pain and suffering incurred by those who fail to develop a proper financial plan can be seen in the following:
1.Financial plans provide people with physical ability to survive the harsh retirement years. People without plans depend on government support and support of their families.
2.Savings obtained with the help of planning provide people with some level of emotional comfort that is associated with the need for protection from the Maslow’s hierarchy of needs. Without the plan and money you’ll not have the protection needs covered and can’t be happy.
3.Savings remove the cause of conflict that is associated with the domestic disputes based on the lack of money. It is a common knowledge that families with solid financial health usually do not have quarrels associated with the limited funds. Without a plan and money, people are likely to quarrel about the money spent/wasted/lost and certainly give pain to each other.
4.Savings provide psychological comfort associated with the ability to give something to others (pay for children’s college, donate to the charity etc.) Without the money/plan you can’t anyhow contribute to your posterity and certainly will incur suffering because of such financial impotence.
5.Savings improve the person’s self-esteem and make the person understand that she/he had achieved something in his/her life. For males excessive savings also mean the ability to get the trophy wife, a new wife to replace their aging spouse and to serve as a representation of one’s own success and achievement. Without proper planning and money, a person is likely to feel like a big loser who is worth nothing and can’t do anything about it now.

Thus, as noted earlier the lack of savings, besides putting people in physical dependence on their posterity in times of need, disability or sickness, certainly reduces the personal self-esteem and emotional state.

Another article titled Plan allows families to save for college each time they make a purchase speaks about the recent corporate promotion initiatives that allow families to accumulate money for college (Jacobson Jennifer, 2004). The article, despite being an editorial advertisement indeed presents some useful information. Companies like AT&T, McDonald’s, Century 21, Coldwell Bankder, ERA and Coca-cola would make a little rebate to their clients from ½% up to 12% to assure their brand loyalty, as they did in the past, yet the article seems to stress the importance of such little college rebates that if acquired with the help of Upromise.com (and if family members encourage each other to use that company and rebates) are for some reason are much better than regular rebates. Jacobson (2004) states that the CEO of Upromise that was featured in the article also noted that one has to stick with the account of Upromise to accumulate more money for college (Para 7). The article and Upromise boast a tax-deferred account that will be spent on college while forgetting to note that family expenses associated with college and education are also tax-deductible. Furthermore, one learns that the human factor and emotions indeed play a useful role in investment and the article’s last three paragraphs present a wonderful critical statement of Timothy McDonough who noted that rebates aren’t likely to help the families save for college but rather help the companies to create loyal customers who would get 1% off their purchases as a compensation for their loyalty and that would certainly be not enough to pay high college expenses. Jacobson (2004) notes that the creator of Upromise, Mr.Doyle, made another unique statement that certainly would bring more clients into this questionable investment opportunity-”college costs are what they are…Parents are already scared…that’s why some of them are not investing [for college]”(Para 13). Upromise therefore, appears to be a wonderful solution for them. From such statement together with the understanding that Upromise still functions, one can understand that people make investment decisions not only based on rational choice but rather on the statement passed by some top corporate executive.

In any case, this article gives us some food for thought. We understand from it that not too many families in the USA are good at planning at all and thus are not able to afford the very college they want. Pain and suffering thus comes from the multitude of different large and small losses associated with the inability to attend college, get a car, house, afford trips or nice closes. Needless to rehash that with the proper financial planning people would have been much happier.

Another interesting article used in my research is the one titled “Avoid the Wedding bill blues” that speaks about the ways to cut the wedding costs drastically based on the advice from Kathleen Kennedy, the author of a $14 book “Priceless Weddings for under $5000” (Brown Monique, 2001). She apparently gives a wonderful piece of advice that would save the couples huge bucks, and thus benefit them, for as the proverb says “a penny saved is a penny earned”.

The advices are summarized in bullet points for better understanding:
One should make a budget to include all wedding-related expenses and then cut costs in each (those who buy the book will know how).

Brown (2001) points out that one should marry on days other than the weekend (Saturday)-it would save money on popular venues and is likely to prevent some guests who work on the weekdays from coming-another cost cut (Para 2).

One should not marry in late summer-early/mid autumn, the time when other people marry because the prices are likely to be higher despite numerous wedding promotion campaigns that the wedding industry initiates.
Brown (2001) also notes that one should limit the guest list (Para 3). After all, neither the bride nor the bridegroom will have enough time for them all.

One should not use any fancy wedding invitations and reply cards but should rather get a paper from Kinko’s and print them out oneself. After all, they will be thrown away anyways. One should use voicemail for RSVPs and thus cut humongous costs on postage. It is better to use some free Internet service and post gift-registry information.

The list of advices goes on advising the weds is to substitute a white bridesmaids dress for a wedding dress and have a reception in a restaurant on a night that it is usually closed. The other wonderful money saving tips include the limitation of alcohol to beer and wine only and to serve a light brunch (rather than dinner) while listening to a high school band (that won’t charge much)-after all the guests came to a wedding and not to a restaurant to have dinner or listen to some top notch band.

The last but not least, is a wonderful commercial opportunity that to the author’s surprise many couples forego. The couple should invite sponsors (companies) to pay for the wedding. The article did not note whether the bridegroom should have a special McDonald’s arches embedded on his tuxedo and once in a while exclaiming “Mm…I’m loving it™”, or the bride posing for pictures with a bottle of coke, yet there is certainly a hint that a book of Kathleen Kennedy does have an answer how to make sponsors pay for the wedding. Here it should be noted that indeed, if the wedding is limited to financial expenditures only and the couple is willing to forego the special life-time atmosphere and save on band, food, drinks, dress, guests, cards, cameramen, and invitations, then a much better low-cost wedding could take place in a drive-thru Vegas marriage wedding agency, or perchance, the nearest McDonald’s with Ronald McDonald being the deejay.

Yet this article once again point out to the need to have a proper financial plan to afford the very wedding one wants. The fact that such books sells already means that not to many people are able to financially plan thing including weddings. The article made a wonderful use of comparisons and counter-examples and certainly hints that one should have a sound financial plan (to afford a decent wedding) in order not to incur suffering and disappointment from a wedding that takes place in a discounted restaurant, with beer being the only drink available, while listening to some amateur school band.

It should be also noted that the majority of individuals although plan for the retirement indeed fail to neglect the importance of saving money and use the credit cards as a source of additional income failing to neglect the fact that they are getting further in debt that bears the interest much greater than the interest provided by the savings accounts.

Another area that helps the ‘early birds’ to benefit from the savings is the compounded interest rate (power of compounding). In simple terms it says that the earlier one saves the money, the more one will have in the future simply because these money will yield some interest. Thus, procrastination usually means that the retirement years may be far from happy and painless.

Ones the individual understands that it is wise to start saving early and that it is wise to keep the expenses low and profits high, one starts to think of the ways to assure some stability of one’s savings, especially in times of financial instability or turmoil.

In conclusion, I would like to note that each individual if she/he wants to have a happy and painless retirement should think of some sound financial plan to serve him/her in times of need that retirement represents. In order for the individual to create such plan, one has to know well his/her incomes and expenses to know how much to dedicate to the savings plan. One should also remember that without the proper financial plan the individual will experience all the hardships and pain that can happen when there is not money and when there is little opportunity to start everything from scratch. The articles depicted in the essay all speak about different benefits of proper financial plans and hint that without them, people are likely to have less happiness and less opportunities. The articles notes on different ways of how to save money be it a wedding or a retirement plan. In all these articles it was hinted that people who want to be happy till their last day should have the financial freedom that is guaranteed by a proper financial plan. People without such plans are controlled by others and thus incur mental pain.

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