How To Create a Truly Holistic Financial Plan (2024)

We hear the terms “financial planning” and “financial plan” thrown around a lot in the world of personal finance, but it’s not always clear what exactly this should entail. And oftentimes, it’s easy to focus only on one aspect of your finances at a time, such as setting a monthly budget or saving for retirement. But the truth is that a sound financial plan is holistic, accounting for your current and future self. In this “Financially Savvy Female”column, we’re chatting with Kate Redden, managing partner at Merit Financial Advisors, about how to create a truly holistic financial plan.

What are the different elements you should consider when creating a financial plan?

A comprehensive financial plan should always begin with your goals. What is it that you are hoping to accomplish or achieve? And not just with regards to money.

I’ll use retirement as an example, as that is probably the biggest question mark for most people. When would you like to retire? Age 65? Never? As soon as possible? Everyone’s perspective on retirement is different, and you should spend some time thinking about your own personal goal — not what your parents did or what society tells you is “normal.” And more importantly, what will retirement look like for you? Is it the chance to travel the world and do all the things you never took the time to do before? Or is it the time to slow down, rest, garden, read?

It’s important to get as much clarity as possible about your goals so that you can then begin to determine how much money will be required to meet your goals. I firmly believe that money, and the accumulation of money, should not be the goal in itself. Money is simply a tool to help you reach your goals.

Investing is often a part of a holistic financial plan. How can you create an appropriate strategy for each of your goals?

Contrary to popular belief, investment strategy is not necessarily determined by your age. Rather, it should be based more on the timeframe for the money invested. Everyone should imagine three investment “buckets,” or timeframes that help to determine their investment strategy.

Your “short-term bucket” should include the money that you will need over the next one to two years. For some people, especially those in retirement, that may be money to supplement their income. For others, it may be a car purchase later this year or college tuition in the fall. These dollars should be kept very conservative no matter your age or risk tolerance. If you know the expense is coming, you can’t risk the volatility of most investments.

The second bucket is the “intermediate-term bucket” and should include the money you may need over the next two to eight years or so. These dollars can afford some volatility as they aren’t needed right away, but the volatility should be moderate as well as the expectation for growth. You may not have much in this bucket if you have good income and no big expenses on the horizon, and that’s OK.

Everything else can be in your “long-term bucket” and invested more aggressively. Even if the investments were to be volatile or go through a period of decline, you have time for them to recover before you need them.

What long- and short-term outcomes should you keep in mind when creating a holistic plan?

Each goal has its own timeframe that should be considered when creating a financial plan. Often, we get so focused on the long-term goal, like retirement, that we don’t give enough attention to the shorter-term goals, like taking that family vacation and making memories while the kids are still young. A holistic plan can help you determine a “finish line” and answer the question, “How much is enough?” Once you know that you are on track for the longer-term goals, you often feel the freedom to reconsider how you allocate your time and money in the short term, which can result in a more balanced life.

GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our“Financially Savvy Female”column will explore the reasons behind these inequities and provide solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.

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