Episode 57: Thoughts on Financial Planning
Last year when I announced that I was exiting my career as a financial planner people were curious about two big things:
1) What was I going to do?
2) How did I know I could do it?
The first on I tried to answer through my book (AfterLIFE, Waking up From My American Dream) and podcast (It’s the Journey), and that is I’m going to live a life of growth and purpose through the pursuit of my passions and interests. The other question was a result of years of planning and that’s what I want to talk about now.
Below is a blogpost I published in 2018 when I was a financial planner. For years and years I had been frustrated with the confusion that exists about what planning is and annoyed at how the financial industry sometimes perpetuated that confusion though everyone calling themselves a financial planner no matter what it was they actually did. I used to say it was as if every car salesman started calling themselves transportation consultants while still working for a car manufacturer.
I wrote this to try to help clear up the confusion and it resulted in new clients seeking me out as existing client wanting to take a fresh look at planning for themselves or loved ones. I’m talking about it still because people keep asking me how I knew I could pursue my dreams away from that career. I had a Blueprint and a roadmap I’m still following as I live my dreams. I hope you will begin today on yours!
Why You Need a Financial Blueprint
(originally published in 2018, I’m no longer a financial planner)
Whenever I ask new or potential clients about reviewing their financial situation, the standard answer is: “I have a plan.” But what they really have is a bunch of “stuff”: an IRA, an insurance policy, maybe a will and trust, and a pile of other things depending on their level of financial wealth and complexity. There’s no master plan guiding the details around all these pieces. It’s the equivalent of setting carpenters, plumbers, and concrete contractors loose on a plot of land and hoping they’ll finish with a dream house. What is missing is a financial blueprint.
Why Is There No Blueprint?
Most of the time it has to do with not hiring someone who’s an expert in financial planning. Many people have a stock broker, an insurance agent, an attorney, and an accountant (or are serving some version of these roles themselves). Those professionals have successfully helped create the things they work with. So, the client walks away with the components of a plan, but without coordination. Lack of coordination can lead to wasted opportunities, inadequate resources for your family, unnecessary taxation of assets or insurance, and simply a plan that doesn’t meet your objectives.
A product is not a plan. You may have an IRA, an insurance policy, a will, etc., but do you have a financial blueprint to coordinate everything?
When I meet new clients, I often see things like:
Some children missing from beneficiaries for IRAs or insurance policies
Former spouses listed as beneficiaries after a divorce
Disability insurance being a taxable benefit because the premium was deducted
Inadequate levels of life insurance due to changing needs not being monitored
Assets not titled in a trust
Lack of diversification in a portfolio spread out among multiple brokers or 401(k)s
And much more
Building Your Financial Blueprint: Where to Start
Whether you work with an advisor or you do the work yourself, your plan should start with your objectives. What are you trying to accomplish? What would you like to provide your family in the event that you live too long, die too soon, or become disabled along the way? Without clear, written objectives, you won’t have a plan that can meet your specific needs any more than you could build your dream home without a blueprint.
An effective financial blueprint should include your goals for the following scenarios:
I/We would like to be able to retire/be financially independent at age _____. Meaning we have $X of income until age X, factoring X% inflation.
In the event that _____ should die prematurely, we would like to provide $X of income to maintain the other partner’s standard of living for X years and provide the following expenses for the children: $X, $X, $X.
In the event that both partners die prematurely…
In the event of disability…
In the event of chronic illness…
In the event of both deaths…
Along with whatever else you are trying to accomplish.
Not Sure What Your Goals Are? You’re Not Alone
As an advisor, sometimes the hardest thing for me to do is to help a client figure out what their goals are. Some things are easy and are just a matter of algebra. Take disability, for example. If you run a financial model of your income and expenses, and remove your income for the rest of your life, the model can show you what the shortage is. This helps answer the question, “Do I need disability?” The same process can be applied to life insurance and long-term care insurance. Retirement planning can be more difficult, because often people are so busy making a living now, that they haven’t really thought about what that future might look like. (My book can help with this) Or they’ve put it off because it seems like such an overwhelming task.
Remember: Planning is a process, not a product. Start by taking the time to identify your financial objectives and life goals. Consider your values, your family, and other things that are important to you. Ultimately, the hope is to create a financial blueprint that will help you achieve your personal aspirations and leave behind the legacy you want.