One of the foundational principals of financial planning is selecting and prioritizing goals for your life. But all too often when I sit down with someone for the first time and ask them what goals they have, I get a slightly panicked stare in return and they are unable to answer the question.
“A Wells Fargo study found that 44% of Americans think it’s harder to talk about personal finance than death, politics, religion, or personal health.”
Source: Wells Fargo Survey
Why is that? I think there are many reasons personal finance is hard to talk about. However, the main one I want to focus on is financial firms conditioning people to think only about a select few things that may or may not be relevant to their situation. These financial goals are almost always portrayed as saving enough for retirement, paying for education, buying a house or some other material object like a boat or car. While there is nothing wrong with these goals, I believe it leaves people feeling like they don’t belong in the conversation if their situation is different.
Financial planning…what?
There is also ambiguity around the term “financial planning” and what it actually means. For those who have experienced a plain-vanilla version of this, you might remember something about a casino and a scary probability number at the end showing that you are very far off from having enough money. While there is value in this type of monte-carlo analysis, if it’s presented in the wrong way it does more harm than good. So, before I sit down with a client to discuss “financial planning” goals, I first need to make clear what financial planning actually is. And this is also why I strongly advocate a re-branding of financial planning as a whole.
Take 2
If financial planning were a tv show and I was the director, the screenplay writers would be fired and I would bring in a whole new cast. It’s not that they did a terrible job or had bad intentions, it’s more so the message has not resonated with the audience.
“If people don’t know the difference between financial planning and investment management, we have a problem.”
And if you’re reading this and don’t know the difference either, don’t worry you’re not alone.
For a long time when people asked me what I did for a living or what services my company offered, I would answer generically with something like I/we provide financial planning and investment management services. The follow up would often be, what’s the difference?
You might have heard it phrased differently with common terms like capital management, wealth management, financial advising, etc… but these terms are all synonymous and the true meaning is lost to the person that matters most, the client needing help. So, before I take a stab at this rebrand, I want to share a story of a “financial planning” goal that I think will help make clear what we are talking about.
What This Looks Like
This summer I was working with a new client who just transitioned to retirement and was unsure whether she had enough money saved. Her biggest fear was that she would become a burden to her kids if she outlived her money. This is a common fear that new retirees face. Her “goal” to have enough retirement savings goes much deeper than simply wanting a calculation of future income needs. It’s emotionally tied to the people she loves most, and she needed someone to understand this and coach her through the different struggles that inevitably come with such a big life transition.
We ended up making some big financial decisions like a home-refinance, dropped a no longer needed life insurance policy, updated her budget accordingly, and invested cash that exceeded her emergency fund. This was only possible because she could trust that I had only the best intentions for her and her situation and was not there to sell her something. While her fear still exists to some extent, she feels confident that we have taken the steps to give her the best outcome given the circumstances we can control. This is financial planning.
Unique Goals
One of the things I try to do with each client is make them feel comfortable enough to share what goals they really have. Sometimes it truly is one of the standard answers like getting out of debt or buying home, but more frequently they have something else in mind. For some, it might be buying land where they can build a barn and own horses. Others might know that a genetic illness runs in the family, and they want to plan financially for how that might impact them and others. But always a real answer only comes after a trusting relationship has been built.
None of these unique things show up on the standard menu of “goals” that people have been conditioned to think about, but they are real goals nonetheless. So what is the answer to our previous question? Asset, wealth, or capital management are all terms that describe how money is invested. It’s very important to do this well, but it is only one part of the larger financial plan that you have to reach your dream.
So how do we re-brand financial planning to capture the uniqueness of the individual? It will first take a shift in focus away from selling products, and instead change to a coaching relationship where financial planners have real relationships with people and guide their financial decision making. My hope is that people start to see this as the new way and push back against the commission based sales models that still exist. To live a dream, you need to have financial freedom. And for most of us, this means taking steps to get there with a reliable coach.
Specific Action Steps
So whatever unique goals you have or specific dream you want to accomplish, there are good and bad methods to get there. One of the most tried and true strategies to building wealth is to follow Dave Ramsey’s 7 Baby Steps. These steps build an invaluable foundation to change the trajectory of your life. If you are not following something similar to this, it is likely you are engaging in bad behavior that does not lead to wealth.
Next you should establish a relationship with a financial planner who you can trust to share your life goals and make sure that person has the ability to speak truth into your life in a way that you might not be able to yourself. This person can help you navigate the complexity of the financial world and walk with you through the ever changing environment.
Finally, financial planning software goes a long way to help keep you on track and stay focused for the long-term. Want to view all of your various accounts in one place so you can track your net worth easily? How about automating your budget, having an estate plan checklist, reviewing insurance needs and forecasting future retirement saving targets? Want to know if a Roth conversion would impact your life down the road? You can sign up to use our financial planning software for free here.
Stevie Heitzmann is the CEO of Altruistic Investing LLC as well as a financial advisor at Bauer Wealth Management LLC, both investment advisory firms based in Colorado Springs, CO. www.altruisticinvesting.com Altruistic Investing LLC is a Registered Investment Advisor (Firm CRD# 289016 / SEC#801-110892) with the Securities and Exchange Commission. Bauer Wealth Management LLC is registered with the Colorado Division of Securities (CRD#: 152977/SEC#: 801-71090)
This article does not represent an investment recommendation or endorsement of any kind. Please consult with your advisor regarding your specific situation. Investing in securities does involve risk of loss that clients should be prepared to bear. The risks can range from failing to keep pace with inflation to losing some or all of the money you invest.
References
Image Credit: Joshua Wilson from Pixabay
Conversations About Personal Finance More Difficult Than Religion and Politics, According to New Wells Fargo Survey: Wells Fargo Online Newsroom. (n.d.). Retrieved from https://newsroom.wf.com/press-release/community-banking-and-small-business/conversations-about-personal-finance-more
Stammers, R. (2019, August 22). How to Use Monte Carlo Analysis to Estimate Risk. Retrieved from https://www.investopedia.com/articles/financial-theory/08/monte-carlo-multivariate-model.asp
Dave Ramsey’s 7 Baby Steps. (n.d.). Retrieved from https://www.daveramsey.com/dave-ramsey-7-baby-steps
Retirement Plans FAQs regarding IRAs Rollovers and Roth Conversions: Internal Revenue Service. (n.d.). Retrieved from https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-rollovers-and-roth-conversions