What is Financial Planning Anyway?

Understanding the term is more important than ever in today’s economy

By Christopher Music

“Financial planning” is a term that has been widely used over the last couple of decades to attempt to explain the activities of investment, insurance and tax professionals. While it has been used more and more by these professionals for marketing purposes, the term is largely misunderstood by the public because the activities to which the name is applied vary as much as the entire financial industry.

As a consumer, you need to understand what financial planning is and how important it is to your future.

Define the Terms

“Financial” means having to do with money and the use of it.

“Planning” is the action of laying out a series of actions beforehand to achieve a known objective or goal.

Hence, “Financial Planning” is working out programs and procedures with your money to pay for the most important goals in your life.

The problem is that when you go to a “financial planner” sometimes the only subjects discussed are usually investments and insurance, and real planning doesn’t get done. Sure, there are “tips” and “suggestions” to improve your finances, but implementation of efficient programs to assist you into a factually better financial condition are rare.

The 4 Basic Goals of Financial Planning

In my view, there are 4 basic goals of financial planning:

1. To actually increase the income of a business so that more profits can go into the business owner’s household (this is business consulting, but it is definitely within the province of financial planning).

2. To manage and reduce as many of the real risks to your wealth as possible (there are many more than you think).

3. To predict and provide for known and “unknown” future expenses so that financial setbacks do not occur.

4. To use the most efficient programs available so that specific financial goals can be achieved with the maximum results and lowest actual waste.

The only way to efficiently and effectively achieve your financial goals is to plan for them. Unfortunately, most people don’t plan because it actually requires time and attention. The reality is that if you don’t plan, you won’t get there. One actually spends more time reacting to situations trying to combat or mitigate emergencies that are created by lack of planning. It’s as simple as that.

When I tell people that I’m a financial planner, I always get the same questions:

• I have this insurance policy….do you have any suggestions?

• What do you think of such-and-such stock?

• Can you get me a better return than…?

• I heard about a way to save taxes, do you know anything about it?

• I got this mortgage, but I don’t know if it’s the right one….

• Or countless variations on any of several financial topics…

Investment or Tax Saving Tips and Tricks

Please recognize that if you’re seeking advice on investment or tax saving “tips and tricks”, quick answers to insurance questions and ways to just handle your debt, then you will end up making mistakes sooner or later that will cost you a lot of money. Why? These questions are indicative of not having a known, comprehensive, well-crafted financial plan.

I’m only interested in getting you to an actual (not apparent -- you know the difference) affluent financial condition. Experience has taught me that if you want to chase the next big investment idea, or try to buy the cheapest insurance online, or take the advice of somebody who has “little-known ways of saving taxes” then it will cost you—big time. It happens with such regularity that you can set your watch to it.

Take the time to get a real financial plan done. My clients will tell you that it will pay off many times over for the rest of your life.