Financial Planning - The Key to Your Lifelong Success

September 7, 2008

Financial planning is not limited to asset allocation, mutual funds, and fixed-income investments - planning should include every aspect of your life.

Should you apply for that credit card? What type of car insurance should you buy? Should we save for our childs college or put money in our IRAs instead? These and many more questions are all part of financial planning.

The Larry Rule - A Little Known Financial Planning Fact

Larry Lindsey is not a famous name, even in financial circles. Currently, Mr. Lindsey is the chief economic advisor to the Bush Administration. In 1996, he was a Federal Reserve Board Governor - and he was denied for a Toys R Us credit card!

To apply or not to apply, that is the planning question. Larry Lindsey, who had excellent credit and a high-income level, set out to demonstrate a flaw in credit scoring algorithms.

He simply applied for every retail store credit card he was offered, and in no time he had too many inquiries. Never mind the fact that he had millions in assets and nary a late payment in his 30-year credit history.

Knowing the Larry Rule is key to your financial planning. If you apply for retail store credit cards every time you are asked to do so, it will have negative effects on your credit.

You may then be asked to pay a higher interest rate on your mortgage or home equity loan, which could cost you tens of thousands of dollars. Sacrificing $10,000 for a 10 percent discount at Fashion Bug is not smart planning!

Auto Insurance and Financial Planning

Most people think of insurance as a legal necessity, but in reality, it is a financial product, and thats important to keep in mind. Dont ever buy insurance just because its legally required or in order to give yourself peace of mind. Insurance must serve a financial planning purpose!

You need to have a planning strategy in mind when you purchase auto insurance. The insurance companys goal is to get you to pay more in premiums than you take out in claims - thus, they profit.

Your goal should to pay as little in premiums as possible in order to be adequately covered. You dont want to have to use your auto insurance, but at the same time, you dont want to be subsidizing the bad drivers who take out more in claims than they pay in.

In order to develop a financial planning strategy for auto insurance, its important that you become as educated as possible on the subject. Luckily, there are dozens of great sites on the internet that provide free information on the various types of auto insurance plans, and the particular laws of your state.

Everyone has to own some form of auto insurance, and thus it should be the cornerstone of any intelligent planning strategy.

The Financial Planning Dilemma - College vs. Retirement

American parents love their children and will do almost anything to ensure they have every possible advantage. As a result, many parents save for their childrens college instead of saving for their own retirement. This act of selflessness is usually not a good planning strategy.

In order to avoid this mistake, one must have a decent understanding of financial planning tax implications. Most college savings accounts are taxed on some level, whereas financial planning products for retirement purposes generally are not. Whats more, saving for your childs college can prevent him or her from receiving the maximum financial aid available.

In other words, by foregoing your retirement in favor of your childs college, you are actually subsidizing the children of less responsible parents - or smarter parents who chose to save for their own retirement, in light of these facts.

College savings plans normally make financial planning sense only for parents with such high incomes that their children would not qualify for financial aid.

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