The coverage of the infrastructure bill in the national press got me thinking about my own personal financial infrastructure. I had to puzzle out exactly what that is. Could it be just the components of financial planning? Is it the technology we all rely on to handle our transactions these days? Are there human infrastructure components? I kept coming to the same answer – yes! It’s all of that and more.
Let’s look at the financial planning components first. All of us know some of the basics involved around this topic. Take for example insurance. We all understand the need for insurance to mitigate risk. We may not fully appreciate the extent of coverage needed, and we may miss a few areas. Having the right type and right amount of insurance is critical. That’s why a periodic review of our insurance coverage is so vital.
How about having some cash available? We refer to this personal financial infrastructure as the emergency fund. The word emergency can be exciting and nauseating all at the same time. However, the emergency fund is a key component of personal financial infrastructure. It’s there for emergencies and not to be an exciting component of your portfolio. Whether you need three, six, or nine or more months of cash should be determined with your financial planner. As should where you keep that cash. Are you using an actual high-yield savings account? Or, will you split the amount and place some in the high-yield account and stack some in various CDs?
Monthly cash flow and debt-to-income (DTI) ratio spring to mind as financial infrastructure. Cash flow should be monitored and it pairs well with your DTI ratio. If you are keeping an eye on your income and spending, your DTI should be in good shape. If it’s not, then it’s time for a debt analysis and a review of your cash flow and spending habits.
Another big personal financial infrastructure component is saving for retirement. How much to save and where to save and invest are points that need to be addressed. This component actually has three stages that need to be addressed: accumulation, decumulation, and management. This will involve some financial infrastructure known as planning software, maybe some calculators, and possibly even the good old Excel sheet.
Estate planning is another important personal financial infrastructure component. What goes to who, when, where and what care do you want for yourself? How will you put this plan in place? What accounts will need to be renamed?
How about the technology in your personal financial infrastructure? What do you use? Your laptop, smartphone, apps, financial planning software? This is a laundry list of items that seems to grow every year. For example, have you had your Social Security claiming strategies analyzed? You’ll definitely need software for that one!
Next week, we’ll look at human personal financial infrastructure. As an independent Certified Financial Planner™, I can help you with your finances and long-term planning. Contact me and let’s get started. #talktometuesday #getstarted #HowIcanHelpYou #GetHelp #Hireaplanner #vacation #CFPPro #infrastructure