How much do you put away for retirement each month/year? Are you getting the maximum return on your investment with the least amount of risk? Will your "retirement/financial independence pot" enable you to maintain your current lifestyle or will you have to cut back once the money stops coming in? What are the odds that you will outlive your money?

If you answered "I don't know" to even one of these questions, it's time to reevaluate your personal financial plan -- assuming, of course, that you have one. If you don't, it's time to start one. Otherwise, say Vistage speakers and financial planning experts Gene Hoots, Burnie Sparks and Barry Zucker, you may be in for a rude awakening when it comes time to live off the fruits of your labor.

At some point in time, you will eventually hang up your spurs and ride off into the sunset. Personal financial planning involves figuring out how much money you need at spur-hanging-up time to produce the cash flow that will sustain your lifestyle for some strategic period of time. In many ways, it's like running a business. To get the best results, you need to plan the outcome and then follow through. In essence, a personal financial plan is nothing more than a strategic plan for your money.

According to our trio of experts, it takes four basic elements to create an effective personal financial plan:

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Laying the Foundation: Taking Your Personal Financial Inventory

According to Hoots, Sparks and Zucker, conducting a personal financial inventory requires action in three broad areas.

Organize your financial information. Gather all the important information about your personal finances and put it in one location. This includes credit card numbers, policy numbers, financial records, wills, trusts, and other legal documents. Store copies in three separate locations -- at home, at the office and in a safe deposit box at the bank. This is also a good time to update any wills, estate plans and other key documents.
Create a personal financial balance sheet. Next, conduct a realistic inventory of your assets and liabilities. Include both liquid and fixed assets as well as all short- and long-term liabilities.

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Charting a Course: Creating Your Personal Financial Plan

Creating a personal financial plan requires a four-step process:

Take inventory. This was discussed in the previous section, "Laying the Foundation: Taking Your Personal Financial Inventory."
Set goals. There are many ways to set personal financial goals. One of the best approaches involves identifying how much money you need to achieve financial independence upon retirement and then devising an investment plan to help you get there. To determine your "financial independence pot":
- Identify the age at which you intend to retire and how many years you want to plan for beyond that.
- Identify how much money you need to live on per year after retirement (taking into account inflation and the future cost of living).
- Calculate the future value of your annual after-tax retirement living expenses in today's present-value dollars.
- Calculate the lump sum amount (at the time of your retirement) required to throw off your annual retirement expenses in today's dollars.

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Understanding Investing Principles

Hoots, Sparks and Zucker believe that by adhering to certain fundamental principles, you stand a much better chance of achieving your investment goals. These include:

Manage your personal finances like a business.
Start early and make savings a habit.
Be realistic about what you can accomplish.
Understand risk.
Don't over-estimate market returns.

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Asset Allocation: The Secret to Successful Investing

Four classes of assets form the majority of most investment portfolios: cash and cash equivalents, bonds, stocks and tangible assets (i.e., real estate, gold, oil). Successful investing strategies always include a mix of these classes and aim for long-term returns. This reduces risk and increases the likelihood of getting the returns you need to achieve your financial objectives.

Another major determinant of portfolio performance is your style of investing within the stock asset class. According to Zucker, the domestic stock market has six separate and distinct styles: small cap growth, small cap value, middle cap growth, middle cap value, large cap growth and large cap value. Each stock class has different performance characteristics. They also tend to move in different directions at the same time.

Investing professionals generally define short-term volatility as "how much the value of an asset fluctuates in a given quarter or year." The greater the fluctuation, the higher the volatility. How much risk is right for you? It all depends on your time horizon, your long-term objectives and your own tolerance for volatility.

When deciding where to put your assets, say our experts, keep the following concepts in mind:

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Selecting Your Financial Planning Team

Two key players -- the financial planner and the investment manager -- form the core of every effective financial planning team According to Sparks, the best financial planners:

Act as consultants rather than salespeople; they tell you how to structure things going forward without having an ax to grind or a commission to make.
Help you identify problems and possible solutions.
Have the training and the experience to guide you through complex investment decisions.
Have excellent listening and counseling skills.

Your investment advisor should help you:

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Avoiding Common Investing Mistakes

To stay on track to reach your financial destination, avoid these common investing mistakes:

Lack of a plan or strategy
Failure to stay the course
Following the vogue
Acting on tips

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Investing in Chaotic Markets

In the face of uncertain financial markets, how should one invest? Our experts offer the following insights:

Stick with your plan. Remember that you're investing for the long term.
Learn to live with reasonable returns. Again, that's reasonable returns over the long term.
Turn off the TV. Don't let the bright lights and glamour of the financial media distract you from your long-range objectives.
Diversify. To protect against wild market fluctuations, consider adding more diversity to your portfolio.
Look for bargains. While maintaining your long-range perspective, look for investments that "go on sale" when their value drops precipitously.
Above all, don't try to predict the future.

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