Traditionally, financial advisors focus on the investment strategy and asset allocation. Advisors want to ensure that a client’s appetite for risk and time horizon match the underlying asset mix. They may provide some financial planning guidance, but it is usually secondary to investment management services.
So, it’s often confusing to prospective clients when I talk about the financial plan as the cornerstone of my process. Here are some of the benefits and why I believe a comprehensive financial plan is crucial:
1. Stop the Drift
“Drifting is just motion, but direction leads to real progress. Are we pilots or passengers?”
I want you to be the pilot of your financial life. For married couples, both of you should collaborate on long-term financial decisions. Don’t wait for someone else to arbitrarily decide what you should do with money you’ve worked so hard to accumulate.
For employees with access to employer-sponsored retirement plans, it is so easy to go on autopilot. You contribute to retirement accounts and spend whatever is left after the bills have been paid. Or you let the “extra” cash sit in a checking account, earning no interest.
Crafting a financial plan allows you to look beyond retirement and focus on other goals. Saving for your child’s education, home renovations, car purchases, and travel are just a handful of other financial goals you may consider.
2. Appreciate Money as a Tool
Regardless of whether you grew up with plenty of money or lived paycheck-to-paycheck, you’ve probably realized in adulthood that money can be a tool. Financial prosperity won’t guarantee happiness, but how you use money can have a tremendous impact on your emotional well-being. Studies show that buying experiences can be more beneficial than buying tangible items. Likewise, spending your money on others is likely to increase your happiness level.
When you create a financial plan, you see exactly where your money is going. This is the perfect opportunity to “rewrite the script” and direct future earnings toward items that are meaningful to your family.
3. Shape Your Money Mindset
Many of us have fear and vulnerability around money. We either think we don’t have enough or that it will run out. I like to think of these financial insecurities as self-limiting beliefs. They circle around in our heads for days but externally don’t carry much weight. After creating a financial plan, you’ll see that many of these fears are ill-founded.
Changing your money mindset requires a shift … from scarcity to abundance. Don’t stay trapped in survival mode.
Seeing the figures in black and white – income, expenses, assets, and liabilities provides an immediate sense of clarity. It’s too hard to define where you are going if you don’t have a firm grasp of your current financial situation. All new prospective clients of my firm fill out a questionnaire, and one of the questions asks about “net worth” (defined as assets minus liabilities). Often, perception does not match reality. Spouses offer conflicting figures or amounts that are too low. Only when couples go through the process of financial planning do they have true awareness.
5. Equate Money with Meaning
At the end of the day, many of us (women especially) want what Julia Pimsleur defines as the “Triple Win”: Money, Meaning, and Mobility. What if money and meaning can co-exist? Perhaps it entails setting aside money to launch a business that solves a problem near and dear to your heart. Or maybe it is more philanthropic in nature -- donating money to a charitable cause. I’m a firm believer that money can have a meaningful impact not only within your immediate family but also your broader community.
Having a financial plan is the cornerstone, or foundation, for any significant financial progress. It provides awareness, direction, and meaning. Initial plan creation is just one step … your financial plan will evolve as life circumstances and goals change.
Go back to the first quote from Michael Hyatt. Do you want to be the pilot or passenger when it comes to finances? At WorthyNest, we like to think of ourselves as the co-pilot. You’re still in control of the plane, but we’re sitting beside you – providing direction and guidance as needed.
Are you looking to build a brighter financial future for your family? Click here to schedule a free 30-minute virtual consultation with me.
You are worthy!
Deb Meyer, CPA, CFP®