The Value of Financial Planning: Lessons from 40 Years in Banking

The economy will recover eventually, but until then, how we manage depends on how we plan for the tough times ahead. The following advice is pretty basic, but it will keep you away from the financial fringes that so many people are clinging onto, unfortunately.

By necessity, local businesses and residents have tightened their belts and purse strings, and are delving into savings to get through these tough times. These are all good short term solutions but the more important discussion we need to have with ourselves and family is, what will be the lessons that endure once the economy turns from a downturn to recovery and (dare I say it?) a return to growth and prosperity?

I think one of the great lessons we can all take from today's economy is ensuring we have our financial game plan on track. I've been in banking for almost 40 years and have seen many recessionary periods and times of great prosperity. Both offer valuable lessons we can learn from the one common denominator that permeates through any economic cycle - that planning for the future is one of the basic fundamentals to achieving your financial goals.

So in a tough economy I thought I would share with you my years of experience helping customers manage through the tough times to financial success. And in a weakened economy we could all use a little refresher on the fundamentals in personal financial management.

The Tough Lessons Learned From a Weak Economy

Never spend more than you make

I would caution people not to indulge in excess spending that doesn't help to create wealth; instead, make small yet scheduled contributions to your retirement or IRA account to help ensure future income when you are no longer working. As it relates to credit cards, I would get out from underneath this financial burden as quickly as possible, especially the credit cards with high interest rates and fees. If you need to use a credit card use one that offers a rewards program, like earning cash back or reward points.

Make certain you provide for some savings for that NEXT rainy day

Your rainy day fund isn't the retirement account. Again, small contributions to a savings account build up over time and it won't encumber your monthly cash flow. Even if the interest you're earning on the savings account is small, that's ok - it's about the discipline of putting something aside each month to help you accumulate your wealth.

Have a plan and a budget

Stress test your personal or business budget with a 50% drop in income or revenue and see what would happen. Stress test with the loss of your two largest customers and see what will happen. Will your rainy day fund be sufficient to get you through six months or a year?

If it's too good to be true, it more than likely is

Stick with your intuition when encountered with these situations. The more pressure you feel to make a decision, the more I would recommend getting a second opinion from a neutral party, like your attorney, banker, CPA or other trusted advisor who only has your best interest in mind.

Always thoroughly analyze any business and personal investment opportunities before making a financial commitment (see above).

I'm confident the economy will recover and the good times will roll again. Until then, how we manage through the times depends on how we plan for them. My advice is pretty basic stuff, but it'll keep you away from the financial fringes that so many people are clinging onto, unfortunately.

Don Schempp is Senior Vice President for the North Coastal Market for Torrey Pines Bank. He brings close to 40 years local banking experience.