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Financial Planning: Here and Now
By: Matthew D. Hoffman

As a church leader, your ministry is seeing that the spirit shines in the lives you touch.  At the same time, you understand the realities of budgets, human resources, facilities, and equipment. 

The same issues play out in your own life.  How do you focus on your spiritual well-being while ensuring a sound financial present and future for you and your family?

Financial planning, just like your ministry, begins with a vision and long-term commitment. It's right in the definition given by the Financial Planning Association: "Financial planning is the long-term process of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitable arise in every stage of life."

This article can get you started. It poses the three questions you must ask before you can get into the dollars and cents of your financial plan.

• What are your financial goals?
• What kind of investor are you?
• What is your time horizon?

If you aim at nothing, you'll hit it every time. What are your financial goals?

The point of setting financial goals is to enjoy life now and when you retire. Goals give you valuable feedback. They allow you to measure your progress toward the financial obligations—and future—you set for yourself.

The more specific your goal, the more accurate it will be and the more you can track your progress. Saying your goal is to "live comfortably in retirement" is a good start, but flesh out your dream a bit more. 

Where do you want to live? What does it cost to live there? Anticipate your expenses for food, gasoline, and, especially, medical care. Do you want to travel?

These are the kind of questions—the kind of specific thinking—that will help you establish your financial goals. Success is in the details. Your goals identify the key aspects of what you want and where you want to go.

The Bible tells us to be good stewards of what God has entrusted to us. Some feel that God will provide for their every need and that they need not worry about managing their money. 

We believe that good stewardship includes managing your money. Investing intelligently is part of that stewardship.

What Type of Investor Are You?
This question has many dimensions, but determining your risk tolerance is the place to begin.  Risk tolerance refers to the degree of uncertainty that you can handle that the value of your investment portfolio goes down. 

A risk-averse investor, for example, might choose to put his or her money into a bank account with a low but guaranteed interest rate, rather than into a stock that may have high expected returns, but also involves a greater chance of losing value.

Your risk tolerance is subjective and may vary according to age, needs, goals, and even personal dispositions. 

To get a sense of your tolerance for risk, take the quiz. And, remember, there is no right or wrong answer.

Rank yourself of each of the following statements using a scale of 1-5 where 1 = strongly disagree, 3 = neutral, and 5 = strongly agree.

1. I would not change my investment strategy if the value of my investments declined by 10% or more.
2. I am willing to risk losses for higher gains.
3. I don't use money market funds in any investments.
4. I prefer having most of my investments in high-risk companies.
5. I might be willing to invest in bonds or money market funds, but I'd prefer to keep most investments in stocks.
6. I prefer using stock funds even though bond funds usually are less risky.
7. I prefer using investments that are more likely to produce higher returns, even though these investments are risky.
8. Stock funds are better investments than bonds, money market funds or CDs.
9. I seek the highest potential for my investments.
10. In choosing investments, the growth of my account is more important to me than risk.

Less than 20 points indicates a conservative investor. 21-39 points indicate a balanced investor.  40-50 points indicate an aggressive investor.

What kind of investor are you? Are you surprised? 

Remember that this quiz is intended to give you a sense of your comfort with investment risk; it is not intended to indicate what investments you should make.

Tomorrow and Tomorrow and Tomorrow – Thinking About Your Investment Time Horizon
Your investment time horizon is the length of time until you need the money you have invested. Your time horizon, along with your risk tolerance, affects what kind of investments you have in your portfolio. An investor who doesn't need their money for decades can own a riskier portfolio compared to someone who needs the money next week.

Generally speaking, the investment time horizon can be called short, medium, and long. Here are some very rough definitions of those time horizons and associated risk levels. Keep in mind that these are very arbitrary and the definitions are not standard.

Short term is less than 3 years. A short term investor has less time to recoup losses. This may justify a more conservative investment strategy.

Medium term is 3 years to 10 years. A medium term investor may favor a balanced investment strategy.

Long term is longer than 10 years. Since a longer time horizon allows more time to accumulate savings and replenish investment losses, investors with longer time horizons can generally accept a higher level of risk and greater allocation to risky assets, which, in turn, should contribute to higher expected returns over the entire time horizon. Your comfort with risk also plays into your long term investment strategy.

Remember that your time horizon is always getting closer. It's always good practice to review your investments against your objectives at least once a year to make sure you are on track.

This introduction to financial planning can get you started. You have sufficient knowledge to be dangerous. To go further in developing a comprehensive financial plan, you might want to speak with a certified financial planner.

Matthew D. Hoffman, CFP, ChFC, is director of service for MMBB Financial Services, www.mmbb.org.

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