A Trip to the Dentist or a Day at the Beach: What Is Financial Planning Really Like?

Tuesday, March 3rd, 2015

Financial planning is, at its core, a process.

While the calculations and conclusions involved in planning are extremely valuable, we would argue the greatest gains are achieved by undergoing the steps themselves.

So what exactly do those steps look like?

First, the client must gather a host of financial documents such as account statements, wills and trusts, tax returns, insurance policies, a list of income and expenses, etc.  Then, through dialogue with their planner, the client identifies and hones a set of goals that are uniquely theirs. Goals can range from very short term in nature to much longer term, and each goal can be assigned a value in terms of its priority to the client.  This is a very personal process.  The planner’s job is to analyze the client’s information in light of their individual goals and provide an appropriate set of recommendations. The rubber meets the road when the planner and the client together settle upon a course for implementing the recommendations and monitoring the client’s progress toward their goals.

The financial planning process is organic. The most successful outcomes are achieved through collaboration. Two-way communication and mutual commitment between client and planner are essential to ensure the plan (i.e. the process) addresses each nuance of the client’s personal financial situation.

Another hallmark of quality planning is flexibility. Simply stated, life happens. It is essential to revisit the plan and evaluate both one’s goals and the trajectory of progress toward those goals when significant life events occur. Perhaps less conspicuous, however, is the need to evaluate the plan at regular intervals over time (e.g., on a yearly basis). The initial plan should provide the launch, and minor course corrections are made over years and even decades. Just as a sailor moves the wheel an inch to the left or right to maintain course on a long journey, seemingly inconsequential modifications to a plan can mean the difference between arriving at the intended destination or not.

Although the terms “financial planning” and “investment (or money) management” are often used interchangeably, there are meaningful distinctions between the two. An investment manager provides just that: advice solely on investment selection. In contrast, a financial planner provides investment advice within the context of the client’s unique financial plan. How should one invest their resources to get from ‘Point A’ to ‘Point B’ in the safest, most reliable manner?  Since no single aspect of personal finance exists in a vacuum, the planner seeks to evaluate and address how each element of a client’s financial life affects the others.

Though the idea of creating a financial plan may feel uncomfortable or even onerous, the peace of mind that comes from making the most of one’s resources and confidently moving toward one’s goals should not be underrated. While we would never describe something as important and complex as personal financial planning as a day at the beach, the process will certainly add some sunshine and ease to your financial life.

Join us in two weeks for discussion on how we plan for an uncertain future.