When I’m asked what I do for work, I tell people that I’m a financial life planner. They think about this for a bit and then ask, “Yeah, but what exactly do you do?”
I think it’s pretty common for my fellow Gen Xers and millennials to be somewhat confused about what a financial planner (let alone a financial life planner) actually does. After all, most financial advisory services are not designed for them (I’m looking at you Fisher Investments with your $500K asset minimum!). But there are a few advisors at the forefront of change that have started to address the needs of younger clients with fee-only financial planning. So, I want to explain what financial planning “does.” In this post, the first of a two-part series, I’ll focus on the basics of financial planning. And in part two, I’ll explain how financial life planning differs and why I think it’s a better approach.
So what is financial planning really?
When people think of financial planning (or financial advice) they tend to think of managing their investments: How much should I be investing? How should it be invested? Am I diversified? WTF is asset allocation?
This is understandable because that’s all you hear about in the media. Dow this, NASDAQ that, buy crypto, don’t buy meme stocks. UGGHH!! But while investment management is a big component of financial planning and worthy of more explanation, it’s only one component in a wide array of services. And because the list of services that a financial planner can provide is huge, I’ll just stick to the broad categories.
A breakdown of financial planning services
Cash flow planning: the heart of a financial plan
It’s the plan (operative word) that allows you to do the things you like doing while still being responsible for providing a great life in the future. It’s directing your money to the right places so that you can actually accomplish those goals.
Planning steps: goal setting > reviewing cash flow > net worth tracking > paying off debt > creating saving strategies > staying on target.
College funding: one of the biggest expenses of your life
A college funding plan will allow you to plan and save strategically for college while also allowing you to reach your other goals because, well, you also have a life to live. Despite everything you’ve heard, funding college is doable. It just takes a little planning.
Planning steps: account selection and funding amounts > evaluating financial aid and scholarship resources > setting distribution strategies.
Retirement planning: the main thing typical financial advisors talk about
Even though this might seem far away, start now! Trust me: the most important financial decisions happen in your thirties and forties because you have time to start planning.
Planning steps: making long-term projections > selecting accounts and funding amounts > reviewing future sources of income > choosing distribution strategies.
Insurance planning: AKA risk management
Often overlooked, having the right insurance in place is a key part of a good financial plan. One bad break can totally derail everything you’ve worked so hard for. Protect your assets and get peace of mind.
Planning steps: identifying risk > determining adequate coverage amounts > maximizing employer benefits.
Tax planning: Where’s my refund?
Proactive tax planning can help you avoid a huge tax bill in April. We’ve found over the years that this service alone is worth the investment of working with a financial planner.
Planning steps: Minimizing taxes through Roth conversions, tax loss harvesting and other tax liability reducing strategies > planning for future tax bills.
Estate planning: yes, you do have an estate
If you haven’t taken the time to write down what you want to happen to your money and possessions, somebody will have to decide for you. And that is usually the government with it’s pre-packaged combo of weird statutes and probate.
Planning steps: Reviewing estate documents for incapacitation or death > correcting account titles > updating beneficiary information > identifying charitable giving opportunities.
Financial planning bottom line
Working with a financial planner is all about being intentional with your money because, in case you haven’t realized this, you have a financial plan. I call this the “I have no freakin’ idea what I’m doing” financial plan.
Not only will working with a financial planner give you peace of mind that someone is in your corner guiding your financial decisions, but it will give you the free time to spend on your career, with family or pursuing other passions.
In part 2, I’ll explain how financial life planning is a better choice than traditional financial planning because it takes the focus off your money and puts it instead on your life and what you want out of it. I promise it’ll all make sense. Read part 2.
If you like what you’ve read so far and want to talk through your long- and short-term goals, click below to schedule a free consultation call with me.
