Financial Planning 101

What is Financial Planning? In this 101st episode of RetireMentorship, we answer that question with Financial Planning 101. We are going to look at:

• What Is Financial Planning?
• The Benefits of Financial Planning
• The Difference Between Financial Planning, Advice, and Management

If you’ve been with us a long time and have thought, “I wish so-and-so would listen to this,” but didn’t know which episode to send them, this will be the perfect episode to share.

If you’re new to RetireMentorship or Financial Planning, here is a crash course with links out to deeper dives on the topics.

Financial Planning 101: What is Financial Planning?

Financial Planning is purposefully arranging the various aspects of personal finance to achieve ones short-, medium-, and long-term goals. Comprehensive financial planning looks at all areas of finance.

The Six Financial Domains

There are Six Financial Planning Domains. We did an episode on each which you find find starting at Episode 24.

• Cash Flow & Net Worth
• Investments
• Insurance
• Taxes
• Retirement (Pre & Post)
• Estate Planning

Proactive Planning

Finanances can happen to you. You work to earn and spend money, and thus have cash flow. You will accrue wealth and take on debt, and thus have a net worth. You will minimally have an employer retirement plan, and thus have investments. You are required to have some insurance and should have others. You’ll contribute to and then receive benefits from Social Security and Medicare, and perhaps a pension, and thus have a retirement. You’ll pass away evenutally, and leave your assets to someone, and thus have an estate.

All of personal finance can happen to you, and you can be a victim of poor decisions and indecision, of ignorance and naivety, of the designs of others and governments. You can continue to react to your financial life.

Or you can proactively decide what you want, learn how to get it, and financially plan to achieve it. The finances will happen anyway. You might as well plan.

Financial Planning 101: Benefits

There are two categories of Financial Planning Benefits

Monetary Benefits

1. Make More Money

Financial planning may help you make more money. It can do this by getting you:

• Better Investment Returns
• Higher Interest Rates
• Larger Pension or Social Security Incomes

2. Save Some Salary

Financial planning may help you save money. It can do this by helping you:

• Save on Lifetime Taxes
• Reduce or eliminate unnecessary insurance premiums
• Reduce total interest paid

The combination of these two Monetary Benefits of Financial Planning is often more than you would pay a financial planner to create a financial planning. But there is more than just monetary benefits.

Mental Benefits

There are Six Mental Benefits of Finacial Planning which we covered in episode 6.

1. Organization – Helping you put the pieces of your financial life in order.
2. Education – Helping you understand how all of your financial picture fits together.
3. Visualization – Helping you see the potential long-term effects of financial decisions.
4. Accountability – Helping you stay on track to meet your financial goals.
5. Proactivity – Helping you address issues before they become problems.
6. Objectivity – Helping you make hard choices and good decisions. 

What if you want all these benefits, but don’t have the time or capacity to do financial planning yourself? You hire a Financial Planner. This is different than a Financial Advisor, Investment Advisor, or Investment Manager.

Financial Planning 101: Financial Planner vs. Advisor, Manager, and Professional

Here is a quick summary.

Financial Planner

A professional who holds themselves out as doing comprehensive Financial Planning. You’ll want a Certified Financial Planner^TM for this.

Financial Advisor

A professional who may give financial advice on several topics. This is a very generic term and could mean anything. You have financial product sales professionals who will hold themselves out as a “Financial Advisor.” You will also find that some of the best fee-only fiduciary financial planners will call themselves a “Financial Advisor.” I do sometimes to appear in searches for “Financial advisor near me.”

Investment Advisor/Manager

A professional who only does investment management

Financial Representative/Professional/Consultant

“Representative” is probably the most accruate term for them. They represent financial companies, usually insurance companies, and sell their products. Often compliance won’t let them use “Advisor” (because technically you need to have the right license to use that term), so they will use the term “Finacial Professional” or “Financial Consultant.”

Which Do I Want?

If you want the benefits of financial planning and want help getting there, you want to work with a Fee-Only Fidicuiary Certified Financial Planner^TM. We did an indepth look at What is a Fidiciary in Episodes 88 and 89. This should be required reading/listening for anyone looking to get financial help.

You can find one at FeeOnlyNetwork.com. If you’re over 50 and want to work with me, you can find my financial planning firm at LaxFP.com. If you under in the X or Y generations and want a fee-only fidiciary financial planner who thinks like my, you can go XYFinancialPlanning.com.

Why You Don’t Want a Financial Planner

As we wrap up Financial Planning 101, here are a few of the most common reasons we see why folks don’t want to work with a Financial Planner.

Doing It Yourself

Some folks have read a few books, listened to podcasts, or done other self-study and know a lot. They are ahead of the curve and don’t beleive a Financial Planner can help them. However, I have never met someone with finances we couldn’t improve. The problem lies in that nearly all financial reasources are created for the general public and thus have general advice. The devil’s in the details, and that’s where we find the value.

Scary/Embarrassing/Pressure

On the other side, talking with a stranger about our intimate finances can be scary. Especially if we are embarrased by our current situation or preceived lack of financial literacy. Others fear they may be pressured into something, like a timeshare presentation.

While I can’t speak for other firms, we have an easy no-pressure two step evaluation process in our firm.

1. Discovery Meeting – We meet in person or over Zoom to learn about you and your situation and welcome questions about us. We then evaluate your financial data behind the scenes.
2. Strategy Session – We meet again and teach you some strategies and show you some opportunities to improve your finances, all without any sales (fee-only, remember?) You then sleep on it and make a good decision later. You’ll reply via email, making a “no” very easy. Sleep on it + email decision = No pressure.

Too Expensive

As mentioned in the Monetary Benefits, financial planning will usually save you or make your more money than it costs. There is only one way to find out if this is true for you: Go through the Discovery/Strategy process.

Procrastination

The BIGGEST reason people don’t work with a financial planner is procastination. We’re too busy! But this procrastination is costing us bigtime! As we talked about in the first episode of the year, one of the most common phrases we hear is “I wish I had done this sooner.” Make this the year! Nearly all fee-only fiduciary planners on FeeOnlyNetwork.com have a free consultation meeting. Schedule a Discovery Meeting with me if you’re over 50, with XY Financial Planning if you’re under, and/or with any planner on FeeOnlyNetwork.com TODAY.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.