I sat with a client last week, recently retired, who said she had thought about going to Italy on a big vacation but wasn’t sure she could afford it so early in her retirement. We sat and talked through her feelings so I could understand it from her side. I then opened my laptop and we went through the financial plan we put together for her last year when she retired. We looked at the impact of this spend and found it really had no adverse effect on her future income. We also then referenced the investment plan [within her financial plan] to make a decision. In the absence of having this financial plan though, how would she have concluded, yes or no, to taking this trip? Knowing she had reservations about spending so early in retirement, would she have ever felt comfortable saying yes?
A few weeks ago, I sat with a client who just got his annual bonus. It was a good year. With one child only 6 months into college and another a few years behind him, a mortgage to pay down, a retirement to fund and some uncertainty around taxes moving forward, he had a lot of questions on how to allocate the extra dollars. He didn’t want to make a bad decision. He wanted to be as efficient as possible with his resources. So, we turned to his financial plan. We ran several different scenarios in real time, together, illustrating different strategies to see the different outcomes. In some ways, it was like a puzzle, as we attempted to put a series of actions together that worked toward the most desired outcome. What would he have decided to do without his plan? How would he have prioritized his goals?
Next week I sit with a man who is ready to retire. Like many, it’s sooner than he thought, because the job weighs heavily on him at this point. Retirement can be scary though. No more paychecks. Financial resources become finite. Healthcare costs, Social Security decisions, a fixed income and volatile markets… He’s expressed the anxiety around all these decisions. The stress of working it all out seems to now match the stress of the job! I can’t wait to sit down and walk him through the planning process. I know we can put it all together to try to give him confidence, one way or another. How much does he need to have saved to feel comfortable? Is he there yet? What are the trade-offs to working one more year? Or would a couple years of earning less/part-time (in a less stressful environment) be just as good? I can’t think of a better way to help him through these huge financial decisions than creating a financial plan.
In each one of these cases, big financial decisions are made easier to assess and consider because of financial planning. To me, a financial plan is a living, breathing, ever-changing, personalized and customized process for decision-making. It can be a series of reports, a summarized list of next steps, or an interactive tool on a computer screen, whatever you prefer. But in all cases, a plan acts as a baseline for decisions when new ideas and goals arise. It brings everything together so that each financial decision can be assessed, not in a vacuum, but as part of a bigger picture where trade-offs can be discussed. Simply put, it’s the foundation to my advice to my clients, and a roadmap to their future.
We live in a world of endless information at our fingertips. But Google and Alexa can’t tell you if taking that trip to Italy is financially responsible, or if making an extra financial gift is okay, or if retirement is 6 months away or 6 years. Every situation is different. So how do you decide what to do? Do you have a financial plan?
April is National Financial Literacy Month. Come learn about our planning process. We’d be happy to show you what it looks like so that the next time you have decisions to make, you do so with a little more confidence.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal.