What it is not and what it is

I notice a growing proliferation of proprietary financial services companies — like discount brokerage firms and mutual fund families — suggesting they do “financial planning” or will offer their potential clients a “financial plan.” But then they discuss said “financial plan” as just a review of his investment holdings, as if an investment plan and a financial plan were somehow synonymous. They are not.

If all you get is a portfolio review, it’s not financial planning.

If all you get is insurance analysis, it’s not financial planning.

If all you get is a retirement assessment, it’s not financial planning.

Each of the above, and many more, is part of financial planning, of course. But to refer to any of these parts as representing the whole is both incorrect and misleading.

The reason it’s important to make this distinction is that without considering a person’s overall financial situation, recommendations for specific elements of planning are diluted at best, if not dubious. This fact is also my best defense against prompt questions such as “Should I buy Roblox or Bitcoin?” !

So let’s talk about real financial planning, in part and in whole – what it is NOT and what it IS:

  • Investment planning—Is NOT just selling stocks, bonds, mutual funds and ETFs; it’s determining how all the assets in your life – including stocks, bonds, mutual funds and ETFs, but also real estate, commodities (virtual and otherwise) and entrepreneurial ventures – intersect with life and bring you closer to your goals and objectives.
  • Insurance planning—Is NOT just buying prescribed insurance products; IT IS learning to manage risk by first avoiding, reducing and assuming risk before transferring risk through carefully researched insurance products.
  • Cash Flow/Budget Planning—Is NOT just for underfunded living paychecks; it IS the engine of every household’s solid financial plan, just as it is of any successful business.
  • Tax planning-Is it NOT preparing your tax return or scrambling your numbers through an online tax service; it’s planning for the present, but also for the medium and long term in terms of payroll taxes, income tax, capital gains tax, tax deferral, tax on gifts, inheritance tax and (if you’re lucky) inheritance tax.
  • Educational planning—Is NOT tossing a random sum of money each month into a college savings plan to assuage your guilt that you are too busy keeping your own financial home to apply much thought to the cost of education of your children; it’s about first developing a family education policy (here’s how much mum and dad are willing to pay and the conditions you must meet to receive this help), then establishing a deliberate plan to achieve these goals , some of which could probably benefit from being invested in a 529 college savings plan.
  • Retirement planning-Is NOT beating a job you don’t love so you can set aside as much of your earnings as humanly possible in a 401(k) and IRAs in which you will seek financial salvation in a retirement that cannot come soon enough; it IS, first and foremost, to find a career that you can enjoy indefinitely in order to always be employable (the BEST insurance against the lack of income in retirement), and to save effectively for financial independence , while allocating dollars to enjoy life today and in the medium term.
  • Estate planning—Do NOT sleep through an expensive meeting with a lawyer to have documents drafted that you do not understand; it’s looking at the impact you’d like to leave on this earth and implementing tangible plans – through wills, powers of attorney, advance directives and often trusts – designed to create a legacy, no matter what your age. .

Financial planning is a mixture of all of these applicable elements, plus others. This includes investments, insurance, taxes, estates, retirement and cash flow planning, but it is necessarily more than a reasoned approach to any of them. And at the heart of the practice, it’s not the proprietary products, services, or strategies, but you. Your hopes, dreams, fears, concerns, priorities, goals, values ​​and aspirations drive everything. Or at least they should be.

According to the Certified Financial Planner Board’s definition, financial planning is “a collaborative process that helps maximize a client’s potential to achieve their life goals through financial advice that incorporates relevant elements of their personal and financial circumstances.” .

That is, the best financial planning is really financial the life Planning.

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