What is Financial Planning?

October 24, 2016

What is Financial Planning?

            At our firm, we always tell people we try to get them from point A to point B with the least amount of risk. Well, financial planning is all about defining what point A and point B are and then determining the appropriate strategies to get there. All situations are a little different, it's about coming together as a team to figure out the best strategy with the least amount of risk that seeks to give the individual the best chance of a successful outcome.


Why do I need it?

            I believe all clients should know "their number." That is, every individual should have a good idea how much they will need to have saved at retirement. If not, how can anyone invest properly? Part of the investing process is knowing who much of a return is needed on your investments. As everyone knows, return is a function of risk. Generally speaking, the higher the risk the greater the potential return, not to mention, the greater the potential loss. One of the most common mistakes I see in my industry is that there is a huge disconnect between what a client is willing to risk versus what the advisor thinks the client is willing to risk. Quite honestly, people's appetite for risk often changes. Point being, know your risk and know how much or how little you need to take in order to reach your number. 


How does it work?

            Financial Planning is the process of determining how to address ones objectives and goals by understanding where you are and where you want to be. The process involves gathering all financial information possible in order to paint a picture of your current situation. The next step involves understanding your goals and objectives. Sometimes that is defined together with your advisor. This next step requires formulating a strategy that seeks to deliver success with the lowest amount of risk. You want the probability to be as high as possible and the amount of risk to be as low as possible.



What is the benefit of doing a Financial Plan?

            Probably one of the biggest benefits of planning is clients understanding what is needed to accomplish their objectives. Too often people let their emotions lead to bad decisions because they get swept up in the headlines. I believe you see less of that with clients that have an advisor that has done a financial plan with them because they understand how their situation is effected and unaffected and plus they have accepted a certain level of risk. Also, often times clients want to know if they can afford something, like a 2nd home or a new car, and planning helps everyone understand how certain scenarios can effect their plan.