Money on Our Mind

Financial planning in good times - and bad

Volume 111, No. 6June, 2011

Pat Dougherty

Financial planning is a vital function of our lives, in both good times and bad. Planning procedures may vary with changes in the economy or in your life, but the process of – and the need for – financial planning always remains. Having a plan gives you the focus and the motivation to achieve your goals.

The planning process begins with a snapshot of your financial “now.” Then, goals and plans for the future are determined. Finally, the actions or solutions for getting from “now” to “future” are determined with a plan. This plan is like a blueprint. And since financial planning is as fluid as life, your blueprint will likely be altered over time to accommodate these changes.

The components of financial planning can be broadly described as the following:

1. Current Financial Condition, which comprises:

a. Cash Flow Statement (all income minus all expenses)

b. Net Worth Statement (all assets minus all debts)

2. Taxation, which is the positive use of basic tax-saving techniques.

3. Risk protection (insurance) to be certain you are adequately insured to protect against personal losses (like medical, disability and long term care); property losses (like home and contents, musical instruments and items of value); and to provide for your dependents (life insurance).

4. Investments are used primarily to accumulate capital for specific objectives. For instance:

a. Emergency Money Fund, ideally equal to six months’ living expenses, to cover the unexpected

b. Provide for the education of children

c. Provide for your retirement

d. General investment fund, which is used – for example – to provide for a better standard of living, to retire earlier, take a special vacation, etc.

Additionally, investing involves many factors. Examples of a few:

a. Your current age and expected life span (estimated time available for you to invest)

b. Your risk tolerance: conservative; moderate; aggressive

c. Purposes of the investments: buy a home; take a vacation; fund college for the children; etc.

d. Types of investments: savings, CD’s, Treasury securities, stocks, bonds, mutual funds, REIT’s, etc.

5. Retirement Planning involves utilizing the options available to provide for retirement. For example: pensions, IRA’s, 401(k) and 403(b) plans, assets that could be sold for additional retirement income, Social Security benefits, etc.

6. Estate Planning is providing for your heirs, which can involve such areas as wills, trusts, pertinent tax law and accounting, insurance, and investments. For many people, estate planning can be fairly simple and inexpensive. For larger estates, it can be very complex and require the use of several different professionals.

To begin your financial planning journey, there are several activities designed not only to help develop comfort with the financial planning process, but also to assist you in achieving certain specific goals. These activities are as follows:

  • To determine where incidental money (the daily, out-of-pocket money) goes, carry a small spiral notebook with you (for at least 30 days) at all times and enter all money spent each day (for example, Starbucks coffee, Metrocards, newspapers, stamps, etc). Total these expenditures daily, weekly and monthly, and categorize them as to type of expense (food, refreshments, travel, impulse shopping, etc.) with their totals. This may sound like a lot of work, but to be this precise can lead to great savings. You’d be astounded!
  • Calculate, not only your recurring monthly and annual fixed expenses (rent or mortgage, utilities, food, clothing, car payment, etc.), but also your extra, unplanned expenses (out-of-pocket medical expenses, auto repairs, etc.). Once again, categorize these fixed expenses with their totals.
  • Determine some goals which you’d like to achieve. Goals are short-term (1 to 2 years – for example, pay off car loan); medium-term (2 to 5 years – for example, buy new kitchen appliances); and, long-term (5 years and more – for example, retire in 15 years).

Once you’ve determined where your monies (both the incidental and fixed) are going, and which expenditures can be eliminated (for example, buy one Starbucks a day instead of two), you can then redirect the saved money toward accomplishing your goals. This practice has assisted many people in establishing and achieving their goals.

Additionally, there are two more exercises which are essential to the financial planning process.

Become accustomed to saving money every day. Commit to putting a fixed amount into the piggy bank each day, whether it be fifty cents or $5 a day, during both good times and bad. Of course, you can always add more money, as desired. This practice helps develop the habit of saving, a necessary ingredient of financial planning.

Be appreciative of yourself, daily, for your admirable efforts to take control of your finances and therefore, your future.

Most of us have felt the negative effects of the downturn in the economy, the constriction of the music business and the accompanying losses and volatility in the stock market. Suffice it to say, the recent economic and market declines (from Oct. 9, 2007 to May 9, 2009) have felt like bad times. The stock market is now considered by some to be in recovery, but recoveries are often erratic and bumpy, and therefore they don’t feel good to most of us.

Recovery periods, while painful for investors, have also been periods of opportunity. The five-year recovery period of 1988 to 1992 illustrates this contradiction:

  • 1988: bank failures; digital cell phones invented

  • 1989: Exxon Valdez oil spill; World Wide Web developed

  • 1990: Iraq invaded Kuwait; British and French tunnels are connected under the English Channel

  • 1991: U.S. recession; Persian Gulf War ended

  • 1992: U.S. consumer confidence dropped; the formal end of the Cold War occurred.

Regardless of whether we’re experiencing good times or bad, by maintaining focus on your financial blueprint and by working to achieve your goals, you should be rewarded with success while experiencing the justified satisfaction of accomplishment.

Bassist Patricia Dougherty has been a member of Local 802 since 1979, and has performed with ABT, ASO, Chautauqua Symphony, LI Phil, MET Opera, NYC Ballet and NYC Opera. She is a current elected officer of the Local 802 Executive Board and has been a Certified Financial Planner since 1989. Members may e-mail her at