What is financial planning?

Here’s the definition of financial planning, as expressed in the CFP Board’s updated Code and Standards published in October 2019:

“Financial Planning is a collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances.“

Do the words “collaborative”, “maximize”, and “life goals”stand out to you? That’s what financial planning is all about.

What financial planning is NOT about is gaining permission to spend money. Nor is it something only wealthy people do.

These are unfortunate misunderstandings of what financial planning is and who it benefits. Those working to build wealth, as well as those who are already higher net worth can benefit from sound financial planning.

When approached correctly, financial planning is comprehensive, professional wealth management.

Another misconception is what type of advisors are financial planners. Job titles and professional designations in the financial industry are quite confusing. Yet, there is an important distinction between investment-only advice and financial planning.

Financial planning is the hub of comprehensive wealth management

What is financial planning?

Financial planning covers seven key areas, which are kind of like a great spaghetti dish – they are ingredients that give tasty outcomes when working together. The seven areas are:

Net worth – efficient strategies for what you own and what you owe, where your assets are located and how are they owned/held.

Cash flow – how and when is income received and outflows paid; think of this as less budgeting and more like managing the cash flow of a business entity.

Risk management – what is your risk exposure, how are you protected, what risks should be transferred to insurance coverage, and which risks can be self-managed (life, health, disability, personal and professional liability, long-term care, home and auto, etc.).

Investing – making the best possible use of your investable assets, aligned with your financial purpose and Risk Number®, and building the right investment strategy to fund what’s most important to you at the right time. This may also include company sponsored plans (401k, 403b, 457, etc), real estate, and other types of investments.

Tax planning – if you are investing, receiving income, acquiring assets of any kind, there is a tax implication involved. While we are not a CPA firm and are not licensed to give tax advice, we help with tax strategy in collaboration with your CPA.

Retirement planning – the word “retirement” can mean something different to everyone…. what does it mean to you? Whatever it is, we’ll define your vision and consistent steps needed to help you reach your “there.”

Estate planning – you’ll spend you whole life saving and acquiring things, so let’s plan for how your legacy reaches those you care about in the most efficient way. While we are not attorneys, we help with estate planning strategy in collaboration with estate planning professionals.

Financial planning is really about understanding your values, your financial purpose, and what you want for yourself. Clarity around what’s most important to you brings empowerment in your financial choices.