Key Ideas to Real Financial Planning
Financial planning is a term you might hear from many advisors and companies, but in reality, very few of them actually practice it.
Even fewer consumers may understand what it really entails!
For example, some advisors’ definition of “financial planning” only involves investments or a couple areas of a person’s financial picture. Advisors who truly utilize a financial planning process are comprehensive and holistic, diving into the cracks and crevices of a client’s finances.
Some advisors only meet with their clients once per year, with no additional time to offer advice. On the other hand, advisors with a real financial planning focus may provide additional meetings or communication to provide advice more often for their clients.
I’d like to introduce a few key ideas behind what constitutes financial planning - as opposed to generic financial advice - and the benefits that come from it.
The Continual Process of Financial Planning
Regardless of your financial needs, one thing is certain: financial planning should be a continual process with regular check- ups.
It’s fairly common knowledge that you should see your dentist twice a year, see your doctor once a year and if applicable, see your optometrist once a year. Why do these experts in their fields want to see us this often even if we feel fine? It’s to ensure that we don’t have any underlying issues that may be small but can eventually become a very serious issue. They also want to ensure that we are on track to live a long, healthy and fruitful life.
The same applies to your financial health. First off, getting a financial plan in place allows you to assess where you are now, clarify where you ultimately want to go with your life, and develop the strategies to achieve those goals and your ideal lifestyle you’ve always dreamed about.
But that’s not enough. After establishing a financial plan, things can change. So, you have to revisit that plan again, and again, and again, and…you get where I am going with this!
The key to effective financial planning comes from revisiting your plan. This is how you know if you are still on track to achieve your ideal lifestyle. Or, if your lifestyle and goals have changed, this is where you get to update your plan. If you are off track, this is a reminder to kick it in gear and get back on track. Most advisors that are doing good financial planning with their clients will meet with them one to two times per year to review and update the plan.
The Structure of Financial Planning
Now that we’ve covered why it is important to have a financial plan and revisit it often, let’s talk about what goes into a financial plan. Every individual and family is different, but the basics of a solid financial plan will include the following:
Retirement Planning
Tax Planning
Investment/Portfolio Management
Estate Planning
Risk Management or Insurance Planning
Income Planning
Goal Planning
Budgeting and Emergency Savings
These are just some of the basic areas of a good financial plan. Each area can be as extensive as the client needs or wants. Other areas of a financial plan that can be unique to each client would also include education planning for children and grandchildren, business planning for business owners, and other special or specific needs.
One of the advisors in the Utah Financial Advisor Network, Neil Mahoney, CFP®, focuses on helping clients who have children with special needs. This is a great example of an area of a financial plan that doesn’t apply to everyone, but there is a definitely a need for.
The Benefits of Financial Planning
Everything comes together to complete your financial plan. Now you know where you are currently, where you want to go and a strategy on how to get there. Putting everything together in one place also will allow you to make better and best decisions regarding your financial picture.
Instead of just making a decision on one aspect of your financial picture, you can make the best decision on that one aspect in regards to your entire plan. This is why it is also key to revisit your plan regularly to ensure you have up to date information to make the better and best decisions.
As I stated before, another major benefit of financial planning comes from seeing if you are on track to meet your goals. Ask yourself if you are on track to meet your financial goals. Are you?
Most people I meet with have no idea and cross their fingers and just hope they are on track. Hope is for romantic movies, not your financial future.
Another benefit of solid financial planning is the peace of mind that comes with knowing you are on track to meet the lifestyle you have been working so hard for or knowing you have a strategy in place to achieve that lifestyle. There is so much stress in our lives before we even throw money into the picture. Why stress yourself out even more by not knowing where you stand in achieving your financial goals?
Hiring the Right Advisor for You
We’ve gone over the process, the structure, and the benefits of financial planning.
Now, the question is how do you find the right financial advisor to help you?
If you were looking for someone to help with your teeth, your health or your eyes, you would seek out an expert that is 1) qualified, 2) work in your best interest, and 3) fits your needs. The same goes for finding the right financial advisor.
QUALIFIED
You should look for a CFP® professional. Why? Because they have to go through rigorous testing, experience and education paths in order to even be called a CFP® professional. They also are held to some of the highest fiduciary standards in the nation.
In short, a CFP® professional will be there for you and your best interests and have been vetted more than just the advisor down the street selling insurance.
FIDUCIARY
The next point is all up to you, but you should look for a fee-only CFP® professional. Fee-only means the only way the advisor is compensated is by what you pay them. They don’t accept commissions or any sort of kickbacks for recommending certain investments or strategies. They can remain objective to your goals and will do what they can to assist you in reaching your goals and not just padding their bank accounts with the highest commission or kickback.
Legally, they are obligated to act 100% of the time as a fiduciary, meaning they have to advise what is in your best interest.
FIT
Ultimately, you need to find the right financial advisor for you and your financial future. The number one thing you want in an advisor is will they take you from where you are now to where you want to go. Nothing else matters if they can deliver on this, so find someone who commonly works with people in your life stage, understands the financial specifics of your industry or profession, or people of your income or net worth level.
Don’t delay another day and start the search for the right financial advisor for your financial future. The sooner you have an advisor and a plan, the sooner you can get to work on achieving the life you want to live.
About the Author
Garrett W. Bybee, CFP®
is a fee-only financial advisor who works with medical professionals, small practice owners, and pre-retirees. He resides in Layton, Utah with his wife Michelle and three children.
