Proverbs 16. 9 says, A man’s heart devises his way, but the Lord directeth his steps. Dwight Eisenhower said, in preparing for battles, I’ve always found that plans are useless, but planning is indispensable.
In the month of June, we talked about debt. Here, we’re going to start a new series on financial planning, talking about what it is, what it’s entail, how to find an advisor and eventually how to start your own financial plan as a DIY wire.
But first, let’s answer the question, why does financial planning even exist in the first place? Well, my supposition is that most people desire freedoms, and there’s really four freedoms in life. There’s the freedom of purpose, essentially doing what you want.
The freedom of time, doing it when you want to do it. The freedom of relationship, doing it with whom you want and whom you don’t want. And the freedom of money. And I believe it’s that last one that really enables the other three financial freedom if you will.
But the challenge is that money’s complex and confusing, complicated. Uh, if you don’t believe me, just read an IRS publication or an investment perspective or insurance policy, right? It gets confusing. But I believe that financial planning as a discipline is a solution to help derive the financial freedom that one desires to enhance the life freedom that they want.
But most people don’t know what financial planning is, let alone the value of it. And that’s what I want to address today. I want to solve that problem essentially by defining what financial planning is.
So, let’s first dig into financial planning. What is financial planning? So, we’re going to talk about from two different directions. One, from a textbook perspective, as well as from a kind of more practical layman’s terms, really kind of giving you an illustration of what we’re trying to achieve. So, for a textbook definition perspective, this is the CFP’s definition of financial planning.
A collaborative process that helps maximize client’s potentials for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances. Let’s, that’s a quite a definition, but let’s unpack that kind of little by little here. Number one, it is a collaborative process.
So collaborative means that we work together. It’s not me doing everything. It’s not you are doing everything. We’re a team working together to try to help you achieve your goals. Which means sometimes I’ll be a guide. I’ll be out in front of you, kind of leading the way, pointing directions, saying, hey, we should go this way.
Sometimes I’ll be walking with you. A lot of times I’m just walking with you, helping you walk life together, life and money. And sometimes I’ll be behind you kind of pushing you. You might not want to go that way and trying to motivate you and try to kind of get you going and steer you in the right direction.
Right. But it’s collaborative. It means we must work together. Number two, it’s a process. Financial planning is a process. Frankly, wealth building is a process. Money never stops. It’s not like you get to age 40 and it’s like, okay, that’s it. Never have to deal with this again. Nope. You’re constantly going and life.
Seasons change chapters of life changes. So, the things that are important in your twenties are not as important in your forties, which are not as important in your fifties, which are not as point in your eighties. So, it’s a constantly evolutionary thing. So, it’s a process really that never stops. But what are we trying to do here?
We’re trying to help maximize the client’s potentials. That’s what we’re trying to do. We’re trying to maximize the potential of doing what meeting your life’s goals, life goals, not financial goals. It’s not really about the money. It’s about your life. How do you want to live? Where do you want to live?
What do you want to do? What do you want to spend your time with? Who do you want to associate? What’s life look like? What does the ideal life look like for you? And what do we need to do to get you there? And how can we align capital and resources in a smart, efficient, effective way to help get you there.
That’s the idea. It says through financial advice, financial advice, essentially is recommendations. Do this, get this insurance policy, make this change, change your investments, pay down this debt, increase your savings, allocate so much of your income for this goal, whatever it might be. That is the advice, the specific recommendations that you Things to do and things to not void.
No, don’t sell your investments. I know the market is down. We’re just going to ride this roller coaster through. No, that’s a junk insurance policy. You don’t need that, right? Whatever it might be. So sometimes it’s done this. Sometimes it’s don’t do that. The relevant elements of one’s personal and financial circumstances, relative elements.
So, what are the elements of the financial things that apply to you? Not everything is going to apply to you, right? Estate tax might not apply to you. If you don’t have children, you don’t have to save up for educational goals. If your children are grown and gone, you might not need life insurance. So again, it kind of changes over time.
But it’s based upon your personal and financial circumstances. So, your age, your health, are you married? Are you single? Are you getting married? Are you getting divorced? How many kids do you have? What’s your income level? What’s your legacy goals? What are you trying to achieve? Where do you want to live?
What’s your tax brackets? What’s your future tax brackets? All these things are personal to you. No two people are the same when it comes to those things. And a lot of it is just values based. What do you value? Christ says where your treasure is there where your heart be also Implying that we spend two things with the things we love.
Number one, our time and number two, our money. And so, what is important to you will be different than somebody else. And it might be something different to me. And one of the things that I’ll be honest with you that I must do is I have to keep my values off your financial plan. The whole idea here is to keep your values on your financial plan, helping you achieve what it is that you want to do, because it’s your life, it’s your money, and we want to try to maximize it.
Textbook definition of financial planning. Now let’s talk from a practical term. So, to help illustrate this, I want to draw it out and I will apologize ahead of time for my handwriting and my drawing. I know it’s not great, but I think it’ll help put into concept. So financial planning, financial planning essentially is getting you from here to there at its basic form.
That’s what it is getting you from here to there. So, if you know where you are, that’s half the battle, and then you must get clear on what you want. What is it you’re trying to achieve in the future? A lot of people don’t know, and it changes over time and that’s okay. But here’s what I have learned personally.
And I know from helping clients, the clearer you can be on what you want in life, the easier it is to get there and to achieve it with your money. Now, once we know those two points, we know where we are and we know where we’re trying to go to, obviously from geometry, we, we all know the straight line is the easiest path to get there.
And that’s what we’re going to strive to do. It is the most effective and it’s most efficient, but we’re dealing with money and we’re dealing with people, and both are very emotional, right? So, this is the logic, the right brain, the structure, the A type, the all’s I’m going to do is kind of go there, but it’s not just about the destination.
All right. The left brain, people say it’s about the journey. You must enjoy it. So, what ends up happening is, you know, we kind of go like this over time. We take some forward steps, backsteps, things happen, life events, things called COVID, right. And eventually the idea is that we get there, right. But it’s not very clean.
And again, financial planning is iterative, which means what might happen essentially is over time. We start here and we are, think we want to go here. But life happens. And so, you know, maybe we start, we’re kind of going on our way and we start, and we realize that we don’t really want to go there. We really want to go here.
Similar, but different, right? So, then we have to kind of course change around. That’s going to happen. You might say, I’ll say I want to live in this type of house in this state and I have this type of job. But a decade later, it could change, probably will change. And so, it’s iterative, it’s flexible, it’s not static by any nature.
Here’s the other truth of financial planning is when we start here and we identify where we’re trying to go to, and again, it’s not going to be clean, the straighter the line, the better, but we get there. What happens when you’re there? Money doesn’t stop. There’s a new there. Getting the kids out of the house, maybe off to college, house, goal, job, et cetera, but life doesn’t stop when you’re 45, there’s another place to go to.
And another place to go to. And it keeps on going. It doesn’t stop. And so, we iterate. Now here’s the reality of how most people live. Most people don’t even holistically know where they are. That’s why we have that assessment. They don’t really know. They don’t know what they’re doing. They don’t know what they’re trying to achieve.
They don’t know that they’re just surviving. I heard a great study from Dr. Benjamin Hardy’s organizational psychologist. That said, they took a whole bunch of people out into a desert and the various locations in the woods, and they told them their instructions were to walk straight. And again, if we are just trying to walk straight, that is the ideal thing.
So, we have, but you need a couple of things. You need a fixed point to go on. Well, they didn’t have a fixed point. What ended up people doing was they started walking and then they ended up kind of ended up going around in circles. And the people in this study found out that. They never left more than a half a mile from where they were.
And I think that’s very symbolic of what people do with their money. They really don’t know where they are. They don’t really know where they’re trying to achieve to. So, they have no guiding point of where to go to. And they start doing something and then life happens, and they get derailed. And they make, try to make some changes and then it gets derailed.
They quit. They stop, they don’t have anywhere they’re going to, they don’t have any accountability. Life gets hard, life happens. And so, you know, they kind of work their way out of debt. They go into debt, they get out of debt, they go into debt, they get a new job, they spend more, and they just spend their entire life, 40, 50 years around where they are currently.
And they never achieve what it is in their life, let alone what their money, what they’re trying to do. This is what financial planning is all about. Trying to help you get clear on where you are, where you’re going to. And in the most effective and efficient manner, recognizing that it’s emotional, recognizing we’re dealing with people on both parties, trying to help you achieve what it is so that you can go to the next there and the next there and the next there.
So, I hope one of those two definitions, either the textbooks, or that one from a more practical. It helps you understand what financial planning is and the value of it. My experience is that without a plan, you’re going to struggle in your career, in life, in relationships, and certainly with money.
Financial planning is the discipline to help solve a lot of that struggle. Imagine what it would be like to have complete control over your money where you and your spouse agree, you have complete clarity on where you’re trying to go and confidence that you’re on the right path.
That is what financial planning provides. So, your micro action for the week, consider how you might benefit from having a financial plan. Today we talked about financial planning, why it exists, the definitions of it from a two-perspective fold. I hope this helps you on your financial journey. If you have any questions or comments, you can leave them below or send an email to Mike at true wealth dot show.
And until next time, I hope you have a great day.
