What is a Financial Plan?

The term financial plan is often thrown around but not defined in a way that helps investors differentiate between a planner, an asset manager or an insurance salesperson. I’m going to do my best to outline what financial planning means at Investment Design, talk through the topics we cover with our clients, and put structure around what it looks like to work with us.

“Financial planning involves looking at a client’s entire financial picture and advising them on how to achieve their short- and long-term financial goals. From saving for education and planning for retirement to effectively managing taxes and insurance, financial planners develop valuable relationships with their clients to provide them with confidence today and a more secure tomorrow.”

The quote above is from the CFP board’s website, and does a good job of framing our goal for investors. It’s not a product sale, it’s not a one size fits all approach. The folks we work with come to us with accounts at various institutions (401(k)s from old jobs that haven’t moved, insurance they bought years ago) with no real idea if what they have is helpful, how it fits together or what retirement will look like. At Investment Design, our goal is to bring structure to our client’s financial life. Below I’m going to outline a few planning topics we cover with our clients, why they are important, and why brining all these items under one relationship makes sense.

Family Balance Sheet

We think about planning the same way we think about a business. Understanding where your assets (401k, brokerage accounts, home value, equity in your personal business, etc.) sit today along with personal/family/business liabilities (credit card, mortgage, college debt, car loans, etc.) gives us a clear picture when looking at short- and long-term goals. The act of getting a personal balance sheet in order can be rewarding in and of itself. It also helps structure other needs you may not be aware of, like insurance and estate planning.

Cash Flow Planning

Once you have your balance sheet together, next we look at cash flow. How can we redirect money coming in to achieve our short and long term goals? This varies by client and situation, however, understanding cash flow along with having an emergency fund is part of the peace of mind that planning can bring.

Debt Repayment

If our goal is to retire at 55, 62, or 70, understanding how debt is structured (interest rates, terms) and the most impactful ways to address that debt gives you flexibility to make other decisions related to your retirement goals. What should I pay off first? Should I refinance my home? What about my college loans? Does a Heloc make sense? These are all good questions, and important when looking at the overall plan.

Estate Planning

I hear people all the time make the comment, “Estate planning is for rich people.” I couldn’t disagree more. While estate planning is a fantastic tool for folks who have amassed wealth and don’t want to be taxed to death, I view estate planning as taking control of choices I don’t want to hand to the government should something happen to me or my spouse. Who takes care of my kids, what does end of life care look like, what happens to my home or my investment accounts, what happens to my business? These are choices I want to make for my family while I can, rather than handing those choices over to Uncle Sam. We’ve all worked hard to save our money, build our company and plan for the future. Leaving those choices to someone else seems foolish when you don’t have to. Estate planning is about your loved ones much more than yourself.

Investment Account

Having multiple investment accounts (Roth IRA, 401k, 403b, brokerage accounts) is an effective tool in the planning and retirement process. Our goal at IDM is to bring clarity to items like taxes, risk, and what kind of fees are associated with each of these. Several accounts at several places can provide complexity that isn’t helpful in a vacuum. It also doesn’t imply diversification. Often, we see complexity as a hinderance to planning rather than a helpful tool. We look at all the assets our clients own, cross reference multiple accounts, and compare each against our goals and the appropriate benchmarks. If you don’t know why you own it, where it is, and how it fits with your plan, it’s time to rethink your relationship with that manager.

Summary Plan

It’s about knowing how insurance fits, how your taxes fit, what’s going inside of our investment accounts and why. Having a summary of where you are is the beginning of having a financial plan. Documenting this brings clarity, clarity helps define outcomes, and from here we make choices. A financial plan is not a document or a balance sheet – it’s a process.

At Investment Design, our clients rely on us to manage their investment accounts and refer them to partners who specialize in insurance and estate planning. But most of all, we are there when questions about finances arise. Planning is about trust, relationship, and helping carry the burden of staying on track. That’s our goal: building relationships and helping solve problems related to finance.

Max Morgan, AIF