What is a Financial Plan?

As a financial planner for nearly a decade, I explain financial planning as an illustration of your current finances combined with a strategy to help you accomplish your future goals. You periodically update the plan because as you change, your plan should change too. As the adage goes, the only thing certain is change. Ideally, it is a document as detailed as a corporation’s business plan. I like to compare your financial plan in terms of SWOT analysis. The idea is that you want to run your finances like a fortune 500 company using a formal financial plan designed to include strengths, weaknesses, opportunities, and threats. The importance of running your calculations is vital to your financial success at every stage in life Although it is prudent to get the advice of a financial advisor, ultimately the person who cares most about your money, is you! Shockingly, 82 percent of all Americans do not have a financial plan. Even more egregious, 75 percent of baby boomers are among them. Aren’t they retired yet? Boomers are old enough to know better! Creating a financial plan for a client always begins with a conversation. Over several years of initiating and listening to others engage with clients, these reported figures are not surprising to me. This is what a typical phone call sounds like: Advisor:          “Thank you for choosing us to invest your hard-earned money! We can assist you further by providing you with a customized financial plan. Our goal is to use our extensive industry knowledge to help you grow and protect your money. If you like our complimentary, professional advice I will be your direct contact who knows you and understands your circumstances so I can efficiently assist you and your family with all your investment service needs.” Client:             “NO!” Advisor:           “Okay, let me recap just to make sure I understand. You already chose to put your money at this institution because you trust our company. You already have funds here so there is no hassle of changing your funds to another firm. All our services are completely free of charge so getting our opinion will never cost you a dime. I am an experienced financial advisor who has helped hundreds of clients just like you and I am fully licensed by the state and FINRA. Also, you will probably need service on your accounts later so you can call me directly and trust that I will get the job done. Will you give me a few minutes to create a quick plan?” Client:             “HELL NO!” – Click. Hangs up the phone. In my years of experience actually having this conversation in my role as a financial advisor I personally think that in general people find it difficult to discuss money of any kind in public. So, when it comes to discussing their finances with others, especially strangers it is just too hard for them to do.

Why Don’t You Have a Financial Plan?

When I call the potential client back to see if I just got accidentally disconnected, I never get a follow-up answer to find out their reason for hanging up the phone. However, Fidelity reportedly conducted a formal survey of people who do not have a financial plan to ask them why they have declined this service. Respondents who refused a financial plan cited the following survey responses.
  • 20 percent stated: “I feel like I am too far behind for it to make a difference.’’
My response: The adage “it’s better late than never” is a perfect response to this sentiment. Very wealthy people have an inkling that everything will be ok. In this case, a financial plan is still essential because the primary goal is to eliminate waste and make sure that your financial behavior reflects your financial intentions. Even after you pass away you probably have intentions to bequeath allotted money to your children or your favorite charity.  I heard someone once say, “If I have a quarter left on my deathbed, I’ll swallow it!” That stuck with me because I saw the humor in the sentiment. However, my counter-argument would be; Even if your goal is to spend every dime you have, make a plan to go out in style!
  • 23 percent cited: “I’ve never thought of having to prepare a plan.”
My response: This is the worst possible reason because anyone who lives in America and has walked into a bank, has an account at any financial institution, or is just alive should be contacted at least once in life by a financial institution and informed about the importance of having a financial plan. More specifically, every financial advisor in charge of a client’s finances has a legal obligation to KYC, Know Your Client. This is the foundation of the FINRA suitability criteria that every professional in finance must abide by. KYC suitability is the foundation of any professional recommendation. ELTOROL is the acronym commonly used. It stands for employment status, liquidity needs, time horizon, the objective for the investment, risk tolerance, outside assets, and liabilities. A financial plan is always free of charge because reputable financial institutions must have a basis for their advice. This is bigger than company policy, it’s a legal issue. If you work with an advisor and they have not created a plan it’s time to shop around. Even better, check out the rest of my website.
  • 22 percent said: “I don’t know where to begin?”
My response: If you are in this category of people without a financial plan and you are still reading this article, you have already taken the first steps. The easiest way to get a financial plan is to simply go to a bank or financial institution and walk up to the first person you see and declare “I have too much money and I don’t know what to do with all of it! Help!” Even if you only have a dollar, chances are the associate’s face will light up and you will find yourself in front and center of a professional advisor immediately. The written survey does not have an option to select HELL NO and hang up the phone. Regardless of the survey results, the question remains how are people without a financial plan keeping track of their financial plan??? In my experience, people who do not have a financial plan have chosen to decline because they don’t want to have the conversation and confide about their finances and just haven’t taken the effort to purchase financial planning software to do the job themselves.  Oftentimes they use figures in their head, maybe they add an excel spreadsheet, or just compare themselves to their neighbors.

The Most Shocking Number in a Financial Plan

I conducted financial planning research to focus on the biggest concerns that clients have and by far the most surprising number is the staggering cost of healthcare throughout retirement. Most people are completely blindsided by this even with a financial plan. Very few of the wealth outlooks conducted by major companies, even Merrill Lynch do not include this vital cost-benefit analysis. Why? The answer is because the numbers are overwhelming. After all, there is a limit to what an hour-long meeting with a financial advisor can cover without a client going into a complete information overload. That topic is often left to subsequent meetings or never covered at all.

Inflation Spells Disaster for Healthcare

Most financial planning software sets the inflation rate around 2 percent. That is jaw-dropping when you consider that interest rates are near their all-time lows. Just think about when you purchase a CD from a bank. You are lucky to find a one-year APY that pays 1 percent! Now compare those numbers to the inflation rate on healthcare which is estimated to be around 6 percent.

Doesn’t Medicare Pay for Anything?

Medicare is a lifesaver, not just for your life but for your wallet. However, even with Medicare coverage, the out-of-pocket expenses for Medicare Part A, Part B, Part C, and Part D costs, plus monthly premiums, deductibles, penalties, copayments, and coinsurance are overwhelming. A good analysis will consider these factors at the heart of the plan which is in the schedule of combined details of the cash flow spreadsheet. Rather than seeking general numbers ascribed to every senior, good financial software will customize your plan to include life expectancy combined with your overall level of health and multiply your results by increasing inflation to give you accuracy and peace of mind. Do not be blindsided! For specific information regarding Medicare, I direct you to my link down below.

Time is Money

Inheritance, bonuses, tax refunds, corporate stock options, and 401K matches are all possible strengths in your financial plan. Ensuring that your profits are on a precise timeline will fortify your financial foundation because of the importance of compound interest. A dollar today is worth more than a dollar tomorrow so getting the timeline right is critical to your success. Einstein was right when he said compound interest is the 8th wonder of the world. Failing to plan is planning to fail. If you do not make a plan for your big bonuses in life, someone else will! The following is a quick demonstration of the importance of compound interest: Imagine you earn $100,000 annually and you want to save $1 million by the time you are 55 years old with a moderate portfolio return of 7 percent on average. What do the numbers look like?
  • If you begin saving 11% at 25 years old, you achieve the 1 million goal.
  • If you begin saving 16% at 35 years old, you achieve the 1 million goal.
The dollar difference between the ten-year timeline is only five thousand dollars but when you inflate the numbers, the results are dramatic! You can see by the illustration how critical it is to never count your chickens before they hatch.

How Will a Financial Plan Help Me?

New Perspective

Image by Macrotrends
One of the main purposes of a financial plan is to identify potential weaknesses. Hint, some potential strengths might be weaknesses. For example, we all want to live forever but what will it cost? According to the Tokyo Times, Japan sells more diapers to the elderly than senior citizens by a factor of 2.5 percent. Longer lifespans are an increasing threat you must plan for. What if you live to 200 years old?! The point is that you want to evaluate these factors to make sure you do not outlive your money. Also, your expenses are going to change throughout your lifespan. Medical expenses, divorce, unemployment can be devastating to your wellbeing and especially to your financial plan and consequently to your life. Maybe you did not save what you think you should have up to this point. A financial plan can make you aware of future traps and likewise save you in the end. If you have emotional trauma you go to a therapist, if you want to get physically stronger you go to a personal trainer at your gym, if you have financial concerns you consult your financial plan.

A Vision Board For The Future

According to the nonprofit organization, Freelancers Union, more than 57 million Americans freelanced part-time or full-time last year, representing about 35 percent of the total. This means a substantial portion of the workforce aspires to earn more income and possibly switch careers to pursue their true passion full time. The average retirement age in the U.S. is 66 years old, though 74% of Americans said they plan to keep working after retirement. What are your aspirations in life and how will you fulfill your dreams? A financial plan is just a visualization board of your goals complete with pictures, but this unique version comes with captions that read as instructions and calculations of how to get there. It’s like a customized Monopoly game board that organizes your money so you can make informed choices and come out on top. When you list your goals include all the details no matter the size so that you leave no stone unturned.

Stabilize Threats

What keeps you up at night? Do you lie awake in bed tossing and turning over something just to find out later your worst nightmare was no big deal? Professional analysis programs compile the threats you should be worried about including inflation, taxes, recessions. Ironically, you may not have even thought of these genuine threats before because you just don’t know what you don’t know. The database will compare the strengths of your financial plan with these real threats to give you a new perspective of your situation.


In conclusion, an investment plan is an investment in yourself. If you are one of many people who do not have a financial plan, seriously consider making one. It is well worth the effort because even if you never use it you will have the information readily available to keep track of your choices concerning finances.  If you are one of the lucky few with a financial plan conducted with this industry-specific software, I challenge you to build on that foundation. If you have a financial advisor who has completed a plan for you it is easy to double-check the numbers, by purchasing a financial planning kit and conducting a comparison study of your own. After you familiarize yourself with the information you will have a more useful dialog with your advisor when the quarterly and semiannual meetings take place. If you currently need to have a financial planner then I encourage you to conduct your plan and later contrast your findings with a professional.