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What is a Financial Plan and why do I need one?
  • What is a Financial Plan & Why do You Need One?
Where Are You Going?

Benjamin Franklin is quoted to have said, “By failing to plan, you are planning to fail.” Or, for those baseball fans out there, Yogi Berra put a slightly different spin on this reality when he said, “If you don’t know where you are going you will end up someplace else.”

Life is a tapestry of your goals, aspirations, and dreams interwoven seamlessly with the realities of your abilities, resources, and realities. If you want a shot at achieving any of them, you need a plan.

But, this isn’t news to anyone reading this article.

Why, then, do the majority of Americans lack a financial plan, a document that serves as their guiding force, as their “map” that helps them try and achieve all of their financial goals in the short, mid, and long-term?

In fact, according to the Schwab Modern Wealth Survey 2021 , only 33% of Americans have a plan in place!

Simply shocking.

We use plans for simple things like dieting, mapping out the best route on a road trip, and how to navigate the lines at Disney World (at least some of us do). Why would someone leave their financial well-being to happenstance; why would they wing it?

In this article, we will address the three main impediments to developing a well-thought-out and comprehensive financial plan while offering insights into what this process looks like when a client and their family works with Aequus Partners Financial Planning.

What is a Financial Plan?
Before we explore why people don’t have one, we need to define what it is in the first place. The Certified Financial Planner™ Board, the leading industry oversight body, defines a financial plan as, “…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. ” In short, a financial plan is an evolving document resulting from a very specific process addressing nearly every area of one’s financial wellbeing. A financial plan should address your:
  1. Financial basics: savings, cashflow/debt management, and budgeting
  2. Investments (portfolio construction, risk management, and diversification)
  3. Retirement savings and income planning
  4. Tax and estate planning
  5. Insurance planning
  6. Psychology of financial planning
Financial Planning goals.
OK, But What Does a Financial Plan DO?

That sounds like a lot of industry jargon. So, let’s make it more relatable.

If you are thinking about retiring at some point in the future, do you know how much you will need when you hit that alarm clock for the last time? Can you afford your lifestyle? What kind of lifestyle are you aspiring to? What are the best ways to save for retirement?

A financial plan helps with that.

Are you thinking about how you will pay your children’s college education?

A plan has helps with that, too.

Do you have enough saved in your emergency fund in case life throws the unexpected at you?

A financial plan can address that.

How are you invested? Are your portfolios properly aligned with your ability to tolerate risk? Do you have the proper amount of insurance? If you are thinking about a large purchase like a home or boat, how should you finance that? What will happen to your wealth after you pass?

A financial plan addresses all these questions and more. And we can almost guarantee that you have thought about at least some of these questions.

At Aequus Partners Financial Planning, we strive to build plans for our clients that provide a clear view of their pathway forward, enable them to feel calm about their financial well-being, and empower them to feel confident about their future.

A Plan to “Beat” the Market

A plan cannot guarantee that you will “beat the market” literally. However, a plan can help you “beat” how the market makes you feel and help you avoid making detrimental mistakes fueled by emotionally charged decisions. A plan helps you re-frame what “beating” the market means for you and your financial well-being.

Investment and market performances are out of your control, to a large degree. Markets will do whatever markets will do. They go up; they go down. Like any other marketplace, price fluctuations should be expected. Volatility is an inescapable characteristic of the markets.

You need to focus on what you can control: your behaviors. And, those behaviors should be guided by your financial plan. If the market experiences one of its corrections (which, for the S&P 500, happens roughly every 18 months), the only question you should be asking yourself is: how does this impact my financial plan?

The market is down? Can you still achieve your financial goals in the short, mid, and long-term? If the answer is yes, relax, turn off the business news pundits, and hold tight.

You cannot allow market behaviors to force you to behave differently, which usually translates into actions that work against your best interests. Most retail investors who handle their own investment decisions trail the benchmarks, significantly. Most people want to buy when the market is great and they sell when the market is low. Don’t believe me? Check out this chart from BlackRock.

Your benchmark for success needs to be your financial plan and its trajectory. Not the markets.

Putting a Financial Plan together.
The Steps for Financial Planning Success

So how do you get started? What does it take to create a comprehensive financial plan? Does it cost anything?

Every firm handles this process differently.

However, the CFP® Board does map out a process that consists of:

  1. Establishing the client-planner relationship
  2. Data gathering and goal articulation
  3. Analyzing the current financial status
  4. Developing and presenting recommendations and alternatives
  5. Implementing the agreed-upon recommendation
  6. Monitoring progress

At Aequus, our process begins with a conversation where we discuss everything that matters in your life. We gather quantitative and qualitative data. That typically takes anywhere from an hour to two hours.

We then gather some additional documentation, which typically only takes the client a few minutes to gather. Let’s call that another 30 minutes to be on the safe side.

At that point, we get together again and present the plan with some alternative options for various elements. Upon agreement of the course forward, we implement and monitor. That meeting is usually another hour.

So, conservatively, the plan takes roughly 3 1/2 hours of your time. The rest is on us.

4380.

That’s not the cost. That is the number of hours you have in a year. Surely, you can spare 3 1/2 hours to create a financial plan, right?

Costs, on other hand, can vary. Some firms charge flat fees, others charge hourly. There are firms that will include the plan complimentary based on the assets under management. If you want to learn more about what these services cost at Aequus, check out our service fee structure.

Why Not Have a Financial Plan?

At this point, I hope we can agree that a financial plan is beyond a powerful tool. It is critical to your financial well-being. We can also agree that you can take the time to create one. So, why do so many Americans avoid this process?

The Schwab survey listed three primary reasons people do not have a plan in place. Let’s explore them together.

  1. They don’t think they have enough money for a formal plan (42%). Financial plans are not about what you have, but what you need it to do. Goals, objectives, and aspirations will obviously need to be aligned with your resources. Everyone works hard for what they earn and save, now what you have saved needs to work hard for you. A financial plan will help articulate your goals, ground them in reality and create a road map to potentially achieving those goals. No matter what you have, you need to ensure that you have a plan in place.
  2. It is too complicated (22%). Finances can be daunting. It can seem like a never-ending avalanche of numbers and percentages. It can be difficult to quantify finances into more tangible terminology. We get that. But, with the amount of technology available to you today and with the help of a competent, educated, and trained Certified Financial Planner™, the process should feel transparent, easily understood, and practical. Here is a free piece of advice: if your advisor speaks to you in jargon you don’t understand, ask them to explain. If they can’t, find someone new.
  3. I don’t have the time to develop a plan (19%). Seriously?! We all know you can make the time.
You CAN Put a Financial Plan Together

Creating a financial plan, an actual document that can help guide and create a framework for you to reach your goals should not be too complicated, it doesn’t have to consume a tremendous amount of your time (but it should require a significant amount of time from your advisor) and it is something everyone – regardless of their wealth – should engage in.

There are a few things you can do in the present to create the potential for a better future. Designing and following a financial plan should be on the top of that list.

Reach out to us if you would like guidance and help creating a financial plan. We are here to help!