The 7-Minute Abs of Financial Planning
What is the hardest part about creating a financial plan? The common answer, like exercising... It's JUST GETTING STARTED…The journey to financial freedom can seem daunting, especially for those who have never created a financial plan before. Not knowing what developing this plan means and what it can entail can be overwhelming. Once we start considering it, we think about the time it may take to gather all the documents or meet with the investment advisors, estate attorneys, tax professionals, insurance agents and the task feels intimidating, and frankly, unpleasant. And so, we delay until we have more time. But let’s be honest, we really just don't do it.
Now there are thousands of resources available ranging from internet searches, personalized spreadsheets, books at the library, and of course, seeking professional help. However, where to turn can be quite tricky. Simply typing into Google "How do I create a financial plan?" leads to search results full of sponsored advertisements more than willing to offer their services. We are bombarded with options and analytics and deciding where to turn for advice leads us right back to where we started, in a state of paralysis.
My solution - Start out with three simple questions and write them down on a piece of paper or in a word document. These questions should be simple and represent what your most pressing financial concerns are today. These questions are not set in stone, in fact, should and will be reviewed and updated frequently.
Examples may include:
Am I on track for retirement?
When should I take Social Security?
How much do I need to save for [i.e. College, House, Car, Vacation Home, Boat, etc.]?
Am I paying too much for [i.e. Taxes, Insurance, Investments, etc.]
Can I afford a new house?
Should I pay down my mortgage?
What happens when I pass? Or spouse passes?
After you have written these questions down, the next step, write down WHY these questions are important to you. This may sound a lot more touchy-feely than what you are expecting from a financial advisor, but I find this step to be the most important part. As a financial planner, I have access to sophisticated software, spreadsheets, and a network of talented professionals where I can run numbers for days on end. However, at the end of the day what truly matters is the purpose why we need to solve these questions for you.
Examples may include:
· I want to spend quality time with my family.
· Losing a paycheck makes me nervous.
· I want to experience events while young/healthy.
· Building a community is important to me.
· I want my retirement lifestyle to include…
· I want my legacy to be…
Once you’ve completed this step, you are on your way to creating YOUR financial plan. Is it perfect? Absolutely not. But you now have the framework for how you want to create your plan and build upon it according to your values. You and/or your trusted confidant can fill in the details. Additionally, these values help guide you in avoiding financial mistakes. So, the next time you are pitched the “hot stock” tip or the questionable real estate endeavor that seems too good to be true. Look back at what you wrote down and ask yourself how this transaction fits with your values.
One of my favorite authors, podcasters, and overall financial advice personalities, Carl Richards, defines this type of planning as writing your Statement of Financial Purpose. I am a true believer in this philosophy because a financial plan is useless if we don't have the commitment to implement the plan and dedication to stick to the plan. And there is no better way to adhere to this commitment than attaching meaning (purpose) to why we are [saving, investing, spending].
Trust me, if you want numbers, I have numbers for you. I use a software called Money Guide Pro. I love the analytics this software provides. After I've met with an individual, when we've completed all the intake and discovery, this software will provide a 70+ page report. However, at the end of the day Richards explains it best in his book The One-Page Financial Plan - A Simple Way to be Smart About Money…
Creating a financial plan is one of the best ways of giving yourself something that everyone wants more of: time.
Our goal is not to create a one-hundred-page plan that we need to obsess about for hours every day. In fact, quite the opposite: once we've used our plan to guide our decisions about saving and investing, we want to do our best to forget about all those little details, automating processes whenever possible. That way, we won't be tempted to stray from our plan every time the market moves.
One of my favorite takeaways from The One-Page Financial Plan, is how Carl Richard articulates the true definition of financial planning. Whereas financial planning is not about avoiding failure but rather about making progress over time.
So, my challenge for you whether you currently have a plan or not, is to take 5-10 minutes (or 7) and write down your three questions and why these questions are important to you. Don't overthink this, you know what those questions are. Posted below are some helpful links, but of course, I'm always happy to chat.
Helpful Links:
One-Page Financial Plan, by Carl Richards: https://www.amazon.com/One-Page-Financial-Plan-Simple-Smart/dp/1591847559
The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money: https://www.amazon.com/Behavior-Gap-Simple-Doing-Things/dp/1591844649
Crafting a Statement of Financial Purpose https://www.kitces.com/blog/statement-of-financial-purpose-advice-achieving-goals-financial-planning/
The Psychology of Money, by Morgan Housel: https://www.amazon.com/Psychology-Money-Timeless-lessons-happiness/dp/0857197681
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Disclaimer: I do not, have not, and never will claim to be a professional writer. More of a self-proclaimed "numbers guy". Please excuse any spelling and/or grammatical errors. All information provided is for educational purposes only and is not intended to be investment advice. The information being provided via hyperlinks may be from third-party websites and is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website. I make no representation as to the completeness or accuracy of information provided at these websites.