Obviously there’s a need for financial planning if somebody named October to be Financial Planning Month. There’s a need for people to be aware of the importance of financial planning. There are some amazing statistics out there and I would just be saying this off the top of my head, but I think the average American now has only a $100,000 saved for retirement. Many of us are living very comfortable lives, not necessarily wasting money, but living pretty darn comfortable lives. If you think about what you’re going to get for Social Security, what you’re going to get for other income sources, and you take $100,000. That is only going to generate maybe $4,000 per month. So, for most of us, we have not saved enough for retirement. Most Americans just have not saved enough for retirement. What does that mean? Well, we have named October Financial Planning Month and let’s talk a little bit about what a financial plan is.

What is a Financial Plan?

Some people think a financial plan must be that 120-page binder. Some of you have gone through things like this where you sit down with a financial advisor, you go through all these questions, you’re trying to plan out every little nickel of income you’re going to have for the rest of your life, and you come back for a second or third meeting, they walk you through this binder and by the time they’re done with this one or two hour meeting, you’re so overwhelmed that your mind is clogged with information that you don’t take any action. That is a big problem in my business. In the business that we have of financial planning and trying to get people to take steps to do the right thing at the right time, I think it’s a huge problem when we overwhelm you with information. So, I think a financial plan should be simple enough for you to understand. Yet, at the same time, it needs to be actionable enough and detailed enough for you to have confidence in it.

So, when we answer that question, “What is a financial plan?” – it’s a plan that’s good for you. It’s a plan that allows you to take the right action steps and also have confidence that as long as you take those steps, that you will have a comfortable financial future.

What’s in a Financial Plan?

Typically, a financial plan consists of a number of things. It can be as little as three things. One thing is, we call ours a Money Map Retirement Review®, but it’s some type of a map or a nice visual that shows you where your savings are, where your income is, and where your savings are going to generate income in the future.

Another component of a financial plan would be based on what you want in retirement or based on what your goals are, if you are on track to get there, and so on. It’s a snapshot in time that asks if you are doing the right thing.

Number three. Let’s take an income projection. Let’s lookout for the rest of my life and see what kind of income I can generate. Remember, the biggest concern people have is, “Am I going to run out of money in retirement?” I would say the second question you need to answer after you answer that one is, “What rate of return do I need on my investment?” This is all part of having a good financial plan.

How Does Risk Come in?

Then, I would say a risk analysis of your investments that you’ve already set aside. How is your money invested? Does it coordinate with the amount of risk that you want to take and that you can handle? Some people can handle a lot of risk, maybe they have a high income, maybe they have more of a risk-taking mentality. Other people probably can’t handle much risk at all and the problem is, if they get into a position where they take too much risk, they’ll get spooked out of the stock market or out of mutual funds at the worst possible time.

I’ll tell you a personal story. My wife Wendy is not a risk taker at all. As a matter of fact, sometimes we look at each other and ask how this ever worked because I’m a complete risk taker. It’s one of the reasons why I built the company that we built, and she just doesn’t want any risk. For instance, she’s never driven in the car with any of my kids. She’s so nervous about them driving and crashing into something that she won’t drive in the car with any of them. My kids have jumped out of airplanes, one of them is in the Marine Corps, there’s just a complete opposite. And I’m probably more on their side of things than I am on her side of things. When it comes to a financial plan, it’s important to have open conversations, especially if you and your spouse have different approaches.

So, again – What is a financial plan? It’s an income projection, it’s a snapshot in time of where you’re at, it’s answering that question, “Am I going to run out of money and how much risk am I taking in that portfolio?” That’s the information that’s included in a financial plan.

Who Needs a Financial Plan?

I would say everyone, from time to time. Sometimes, people call us after seeing me on a TV segment or hearing me on a radio program and they’re on the verge of bankruptcy because they’ve borrowed much more than they can ever pay off. They come in and they say, “I don’t have any investments at all, but can you just help me get on track?” That financial plan might not be the same one that you have; you might have investments, you might have future sources of income, but everybody needs a financial plan, whether you have a lot of money or not.

And this is another misnomer that very wealthy people almost all have financial advisors. They actually control their finances, many times, a lot less than people of modest means. So, wealthy people need a financial plan, average Americans need a financial plan, and certainly people that are in financial trouble need some type of a financial plan to get out of that trouble.

What Does a Financial Advisor Do?

I think that when people come in for their first visit with us and we’re going through the planning process with them, they’re a little scared to ask, “Well, what do you do? How do you earn your money?” While every firm can pay their advisors differently, the primary role of a financial planner is to instill confidence in your financial future, removing fear and uncertainty. By providing guidance and support, they help you navigate the complexities of your financial journey with peace of mind.

At the beginning of this segment, I mentioned these binders that some of you may have received, containing a 100 or 150-page financial plan. However, going this deep into analytical details often fails to address the emotional problem that many of us face, which is the need to have confidence in what lies ahead. To make sound decisions for retirement, it’s crucial to overcome any fear. These emotions can often cloud our judgment and keep us from making the right choices.

So, number one: a financial advisor should remove the fear that you have about your financial future and give you confidence. What are the components of that? Again, things like a retirement income plan, things like “Are you taking too much risk?”, things like “What’s the next short-term step and what’s the long-term goal?”, that periodic review, whether it’s every year or every few years to make sure you’re on track. A financial planner should be doing all of that, but again, it should be giving you confidence and removing fear.

When Should I Get a Financial Plan?

I have a son who graduated from college in 2020 right in the midst of the Covid-19 pandemic, so he’s now three years into his work career. We’ve actually done a financial plan for him, in his case, when he was 24 years old. We have some people coming into our office who are just five years away from retirement and have never worked with a financial advisor before or had a financial plan, but they’ve saved money. That’s a good time to do a financial plan. Now is the right time to do a financial plan.

Wherever you’re at in life, do a financial plan. It can be a simple one. It doesn’t have to be super detailed, but wherever you’re at in life, do a financial plan. A lot of people come in and tell us they’re not ready to do one because they’ll be embarrassed; they haven’t saved enough money or they’re worried about how they measure up with other people that are in their situation.

There are so many reasons that can go through our minds about why not to do a financial plan. A sophisticated approach is not necessary. When meeting with a financial advisor, you should not feel discouraged about your current financial situation. Your advisor should instill confidence in you. Even if you choose not to pay for their services or invest money with them, it’s important to leave their office with tangible advice. This could be a concise 7-page document, or it could be 70-pages, preferably fewer. But it should be some plan that empowers you to assess your progress and determine if you are on track towards your financial goals. Taking control of your financial future is a powerful step, and it should be in your hands, not someone else’s.

So, what is a financial plan? It should give you a snapshot in time today and it should give you an idea of how to get to where you want to go in the future. What information is included? An income projection, a risk analysis of your particular portfolio, and some type of simple document that shows where you’re at. Who needs a financial plan? Everybody. I don’t care if you’re rich or broke or you’re young or old, everybody should have some type of a plan. It doesn’t have to be super detailed, but some type of a plan. It will give you more confidence. What does a financial planner do? I just mentioned the word “confidence.” They should give you confidence in what lies ahead. They should remove fear from your financial future. When do you want that plan? Now, whether you’re 25 years old or 85 years old, you should have a financial plan. Now.

Working with a Fiduciary Financial Advisor

When we’re talking about financial planners or advisors, it’s really important we understand this concept of fiduciary. Well, what is a fiduciary? Not all financial advisors are fiduciaries. A fiduciary is somebody that must act in your best interest. The opposite of that is somebody who’s perhaps a stockbroker or a salesperson and they’re only acting in an interest where they won’t harm you. There’s a different degree. One is fiduciary that has to act in your absolute best interest. The other, as long as they sell a product that doesn’t hurt you, that’s perfectly fine, but it may not have been the best fit.

As CERTIFIED FINANCIAL PLANNER™ professionals, we have a certain standard of conduct that we have to act in because we are fiduciaries. If we don’t uphold these standards, the board will remove our CFP® designation. There are also standards in our industry. The regulators have certain standards for fiduciaries, so we must act in the best interest of the client.

Let’s use another example. Let’s say that you go to a butcher shop and you’re going to ask the butcher, “Hey, what should I buy? What should I do here?” They’re going to tell you to buy some type of meat because that’s what they sell. There’s that old saying, “If the only tool you have is a hammer then everything begins to look like a nail.” Well, if you go to a butcher and you ask what you should do, he’s going to say to buy meat.

Some financial advisors only sell one product and again, that’s not an example of a fiduciary. A fiduciary is a little bit like a dietitian, very different than a butcher. You’re going to go, they’re going to do an analysis of your situation, they’re going to talk about goals, they’re going to talk about health, and you’re going to get a custom dietary plan based on your situation and certain goals. That’s a little bit like a fiduciary. They’ll analyze your situation, they’ll act in your best interest instead of like a stock broker or salesperson that just has a certain menu of products to sell. So, it’s very important to find a fiduciary.

There are a lot of financial planners out there. Some do a really good job. Unfortunately, some do not do a good job. Find somebody that you feel comfortable with. It’s a little bit like a relationship with a physician. When we were raising our kids, my wife would prefer to talk to the physician’s assistant rather than the doctor because the doctor never had a lot of time. The PA took all the time in the world with my wife when she was discussing my kids’ health issues. So, they had this bond that’s a little bit like what you want with a financial planner; the feeling that they understand you, that they’ll take the time, answer the hard questions, and push you in the right direction. So, October is Financial Planning Month. Make sure you have your financial plan in place.