What it is, why it’s important, and how financial advisors can help.
Like playing an instrument or mastering a trade, financial planning is a skill. A natural interest and aptitude helps, but there is no substitution for education, time, and experience. In this guide, we’ll discuss what financial planning entails, the process of financial planning, and how professionals like financial advisors and wealth managers can help.
You don’t drive to a new location six states away without directions, right? Think of financial planning the same way: You have a destination in mind, but you need a list of directions to get there.
Financial planning starts with assessing where you are financially, pinpointing your goal, and figuring out what milestones you need to reach to get to your destination. You need to consider your savings, debts, benefits, investments, and anything else that could impact your financial state now or in the future.
Some talk about a financial plan as if it is a simple one-page document that you put together once and never need again. The reality is your financial plan is not a static document — just as your life changes, so too may your financial plan. Along with unexpected detours or pivots, positive changes like career progression and starting a family are things your plan needs to take into account
To be clear, having a solid financial plan does not mean you’re planning out every last detail of your life. It’s there to guide you and keep you on track to make sure you aren’t putting big goals like retirement at risk, empowering you to live more confidently today and comfortably in the future.
Financial planning on your own is absolutely possible, and many choose to do this (especially early on) but with a financial advisor or wealth manager as your co-pilot, your financial journey will be less stressful, and you’ll have an unbiased third party to turn to for tough decisions. A good advisor will use the following to help you answer big financial questions with a bit more confidence:
Simply put, financial planning helps you prepare for anything that may come your way: sudden job loss, health issues, a big move, retirement, even car trouble (or when any of these issues impact your children). When all your financial components are in place, you know exactly what you have and how much you can use toward getting back on your feet.
(Source: Gallup)
Financial planning gives you an understanding of your current spending and budgeting habits to help you feel in control of your income, expenses, and investments.
A solid financial plan should:
If the plan you have in place now isn’t inspiring all of the above, it’s time to go back to the drawing board.
Financial planning starts with assessing where you are financially, pinpointing your goal, and figuring out what milestones you need to reach to get to your destination. You need to consider your savings, debts, benefits, investments, and anything else that could impact your financial state now or in the future.
Some talk about a financial plan as if it is a simple one-page document that you put together once and never need again. The reality is your financial plan is not a static document — just as your life changes, so too may your financial plan. Along with unexpected detours or pivots, positive changes like career progression and starting a family are things your plan needs to take into account.
To be clear, having a solid financial plan does not mean you’re planning out every last detail of your life. It’s there to guide you and keep you on track to ensure you aren’t putting big goals like retirement at risk, empowering you to live more confidently today and comfortably in the future.
Financial planning on your own is absolutely possible, and many choose to do this (especially early on) but with a financial advisor or wealth manager as your co-pilot, your financial journey will be less stressful, and you’ll have an unbiased third party to turn to for tough decisions. A good advisor will use the following to help you answer big financial questions with a bit more confidence:
The biggest benefit of building a financial plan is that you will be better prepared for whatever comes your way — from the smallest home repair to unexpected medical expenses and beyond, without sacrificing your long-term goals.
Setting goals
Finding motivation and commitment
Guiding actions and decision-making
Setting performance standards
Diversifying your portfolio
Providing emotional and mental health benefits
Creating a financial plan is a multistep process that starts with a discovery phase. This is where your financial advisor will ask you about your current situation, including questions such as:
Once your advisor better understands your life and your goals, they can start with goals-based financial planning. This is where you’ll start to attach specifics to your goals — rather than saying, “I want to retire,” you’d say, “I want to retire at 55 with enough money to travel occasionally.” With current inputs, future goals, and data that takes a variety of situations into account, your financial planner can help assess the likelihood you’ll be able to achieve your goals or if you need to make adjustments.
Other specific goals:
As we mentioned above, your financial plan is not a static document. It will change as your life changes. When you begin with a financial planner, they’ll conduct a financial independence analysis, which includes the following:
There is a tendency as your needs progress to hire out a team of professional services without connecting them. You might occasionally need a CPA, estate planner, broker, etc., but miss the opportunity to have one central financial advocate who understands you best and a team of experienced professionals behind them for added support. A great financial planner (often called a wealth manager) will proactively connect all aspects of your goals and financial life together for a cohesive plan that reduces duplication.
(Source: Northwestern Mutual)
Life happens fast, and having your financial ducks in a row will help you pivot quickly when the time arrives. Here are a few life scenarios that help further illustrate the benefit of financial planning for you and your family.
As your children find themselves, it’s time to help them get established. Make a plan to pay for college, living arrangements, textbooks, and more.
Related Reading: Preserving Generational Wealth: What to Know About Family Trusts
Starting life with your new partner involves financial decisions, from combining assets to combining bank accounts, signing prenups, and more.
Related Reading: How Does a Prenup Work and Should You Get One?
Prepare your family for life after you’re gone. Make a plan for assets, investments, savings, and more in your estate plan. A financial planner can help you make sure all the pieces are in place.
Maintain family-owned businesses, develop financial literacy, and generate passive income for future family members through investments. Make the right steps to establishing generational wealth today.
Related Reading: How to Build Generational Wealth
Are you a business owner? Ensure your business is in good hands and step away on your terms with a succession planning advisor. We’ll create an exit plan together that provides the best outcome for you and your business.
Related Reading: The Information You Need For Every Type of Succession Plan
Retirement is likely the largest goal incorporated in every financial plan. Saving money isn’t enough — a financial advisor can guide you on the path to saving and investing enough to make your retirement dreams come true.
Employee stock plans and equity compensation often go under-utilized because of their complexity. You can maximize your earnings with an investment advisor.
Your investments should empower your goals, not constantly stress you out. Diversify and optimize your investment portfolio to achieve your goals. Avoid tax implications and grow your savings with an investment advisor.
Related Reading: 3 Best Investment Strategies to Consider to Meet Your Finance Goals
Help prepare for your child or grandchild’s future by adding a 529 strategy to your financial plan. A financial advisor can help you save for education while still meeting your other financial goals.
Choosing a financial advisor starts with your needs. There are many types to choose from, which we’ll define below.
(Source: NASDAQ)
As you begin your search for an advisor, there are two important designations to keep in mind: CERTIFIED FINANCIAL PLANNERs™ (CFP) and fiduciaries. If you want to go the extra mile, look for a CEFEX-certified firm, meaning they are certified in their their dedication to always do what is right for their client.
Fiduciary advisors are tasked with working in their client’s best interest rather than the firm’s. Not all financial planners are fiduciaries. A fiduciary financial advisor is legally required to operate in your best interests, not theirs. They are typically compensated in a fee-based way and will charge you a fee and act based on your needs, regardless of where you invest your money.
On the other hand, brokers and some investment advisors may make commissions if they sell certain products to their clients, presenting a conflict of interest. Some see this brokerage model as tainted because it de-incentivizes the client relationship.
CERTIFIED FINANCIAL PLANNERS (CFP) are required to complete courses in topics such as investment planning, saving for retirement, and education planning. Then, they must pass a two-day board exam and complete three years of related professional experience or two years of apprenticeship. To maintain CFP status, they regularly refresh and update their skills to make sure they’re staying up to date to best serve your needs in a rapidly changing world.
Start by choosing a financial planner that specifically focuses on what you need. For example, if you’re looking for retirement planning, make sure that aspect of planning is in your advisor’s repertoire.
As you search for a planner, here are some questions you could ask in the interview process:
Knowing how your financial planner gets paid can be crucial to the hiring process. After all, you want someone who works for YOU and in your best interests, not their own.
Commission planners: May charge a commission based on transactions, trades, or for purchasing annuities, mutual funds, or insurance policies within your larger financial plan. Because they earn a cut, the potential for bias is ever-present.
Flat, hourly, or service-based planners: Charges a set level of service for a flat fee, no matter what. This service is perfect for one-off projects like creating an estate plan. Because the fee is set, everyone receives the same level of service.
Advisory fee: Often charged based on the percentage of assets under management with a tiered fee schedule, similar to a retainer fee. These advisors aren’t paid to recommend specific products, so their advice is less prone to conflicts of interest and therefore likely independent.
Commission planners: May charge a commission based on transactions, trades, or for purchasing annuities, mutual funds, or insurance policies within your larger financial plan. Because they earn a cut, the potential for bias is ever-present.
Flat, hourly, or service-based planners: Charges a set level of service for a flat fee, no matter what. This service is perfect for one-off projects like creating an estate plan. Because the fee is set, everyone receives the same level of service.
Advisory fee: Often charged based on the percentage of assets under management with a tiered fee schedule, similar to a retainer fee. These advisors aren’t paid to recommend specific products, so their advice is less prone to conflicts of interest and therefore likely independent.
Achieving financial freedom is defined as having enough savings, investments, and cash on hand to afford your ideal lifestyle. Implied in the definition, it also means you have a nest egg for retirement or career changes, empowering you to be free to do what you want. It’s a buzzword, for sure, but ultimately it symbolizes reaching a point in your life where you aren’t motivated by having to earn a certain amount of money each year.
To determine what financial freedom looks like for you, answer these three questions:
Next, create a plan that will help you stay on track to achieving financial freedom:
Bring these goals to your financial planner. They will set the wheels in motion to achieve them and also hold you accountable should you start to stray from your path.
There are seven stages of financial freedom:
This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.
Plancorp is a registered investment advisor with the Securities and Exchange Commission ("SEC") and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure brochure and our Form CRS for additional information regarding the qualifications and business practices of Plancorp.
Let Plancorp help so you can focus on making the most of your wealth
St. Louis, MO | Nashville, TN | Sarasota, FL | San Francisco, CA
Direct: 636-532-7824 | Toll Free: 888-220-1163 | info@plancorp.com
© 2023 Plancrop, LLC. All Rights Reserved.