Summary

In this conversation, Mike and Amy delve into the intricacies of financial planning, emphasizing that it is a continuous process rather than a one-time event. They discuss the importance of understanding financial goals and values, the key elements that make up a financial plan, and the significance of cash flow analysis and budgeting. The conversation also covers risk management, investment strategies, estate planning, and the necessity of comprehensive planning. They highlight the importance of implementation and active participation from clients in the financial planning process.

Chapters

00:00 Introduction to Financial Planning

03:16 The Financial Planning Process

06:23 Key Elements of a Financial Plan

12:12 Risk Management and Insurance

18:36 Investment Strategies in Financial Planning

23:49 Estate Planning Essentials

29:54 The Importance of Comprehensive Planning

35:49 Implementation and Ongoing Support

Takeaways

• Financial planning is an ongoing process that requires regular updates.
• Understanding your values is crucial in shaping your financial goals.
• Cash flow analysis is foundational to any financial plan.
• Risk management is essential to protect your financial future.
• Investment strategies should align with your overall financial plan.
• Estate planning is a critical component of financial planning.
• Comprehensive planning considers all aspects of a client’s financial life.
• Implementation of the financial plan is key to achieving goals.
• Clients must actively participate in the financial planning process.
• Regular reviews and adjustments are necessary to stay on track.Links

Links

Schedule a consultation with Mike

Schedule a consultation with Amy

Transcript

Mike (00:00)

So Amy, today we’re going to be talking about financial planning and what does that mean and how do we go about it? What are things that we’d want to include in any type of financial plan? This is kind of kickoff to kind of an overview of the financial planning services over the next couple of episodes.

Amy (00:26)

Yeah, you might imagine that financial planning is the favorite topic of two financial planners. So I’m very excited to dig into what financial planning is for clients.

So Mike, let’s start with like the, at its core, what is financial planning? Financial planning at its core is a process.

of developing a plan to achieve your goals and then of course no plan is ever complete right so you’re always iterating the plan. And so when you think about financial planning and the process like how do you think about the process in terms of the things that you revisit and the steps that you go through with your clients.

Mike (01:42)

Yeah, for I think it’s it’s very similar. You know, most military members have been through the planning evolution and it’s and it’s really very similar just on a financial basis now. So, you know, the main steps are you gather a bunch of information to figure out where you are. You think about, well, where do we want to be over some period of time?

And then you go through the steps to figure out, how do I get from point A to point B? And that’s really overall what a financial plan or financial planning is just a process of doing that over time. So that’s really how I think of it in a broad sort of way. Now, I know we’re going to dive into what are all the specific things you need to bring in, because again,

your financial life is intertwined with so many other things that you want to make sure you’re considering all those things before or as you’re building that plan because, you forget insurance and something happens to somebody while you may have had a pretty robust plan, it wasn’t complete and that can blow up everything else. So it really is making sure you’re considering everything that has financial

intertwines and when you’re doing your plan.

Amy (03:16)

Yeah, and I mean, I think especially given our audience, I think it is important to relate it back to sort of, you know, the military decision making process almost and the planning process because, you know, you’re gathering data, you’re setting out your objectives, and then, you know, you’re also coming up with all the different, you know, the list of courses of action.

So, you know, when you go to a financial planner, you are an active participant in the process. It’s not enough to just give the planner all the information that they want. You have to participate in the process in terms of, you know, providing feedback on the recommendations. It’s the planner’s job to go through the technical aspects of things and lay out your options and get through all the details of all the elements of, you know, the technical elements of financial planning. at the end

the day the financial planner wants to hear from you on, you know, is this recommendation in line with your values? Are there considerations that just now have come up because I suggested this one recommendation and it’s maybe not in line with your family values or you forgot that you had this other objective you wanted to achieve? So, you know, it’s a process.

It’s very similar to the the process that the planning process that you’re already familiar with and it requires you to be active in the process.

Mike (04:46)

Now, one other thing before we start diving into the individual topics that should be considered is, I’ve come to think of this in ongoing planning. And that means on kind of a repeated basis is better than a static plan. I mean, you can go get a plan. It’s a snapshot in time.

And, you know, as the old statement, everybody’s got a plan till they get punched in the mouth from Mike Tyson. You know, things change as soon as that plan is in place. Something’s changed. The stock market’s gone up, down, whatever. So it needs to be an ongoing thing. Now, I will say that though having a plan is better than, you know, kind of winging it or doing nothing. At least you’ve got some guidance and

If you’re in a period of your life where not that much is changing, that you can just continue to proceed along. A plan may be good. A plan may last for two years or so that you don’t need to revisit it monthly or anything like that. So it’s finding that sweet spot and really understanding.

you know, complexity of your life and how much things are changing and when you, you know, really need to be doing it more regularly versus, okay, I’ve got this, you know, document that gives me some direction and I can just go from that.

Amy (06:23)

Yeah, yeah. And so since we have sort of the framework for planning process now, which most of our listeners already sort of had that down, but just to reiterate that it’s basically the same. But now that we’ve covered sort of that framework, what are the pieces, what are the elements that go into a financial plan?

Mike (06:34)

Thank

Sure, I’ll throw out a couple and we can just kind of go back and forth. the one thing that you hit is financial goals, understanding where do you want to go. That is a key input into any financial plan. So I’ll start with that one. How about you?

Amy (07:10)

Yeah, I mean, I think along with the goals, and you know, some clients are very interested in talking about this and some some clients feel like it’s a little bit too squishy for them. But understanding your values, like if if one of your values is that, you know, you you grew up or you want to give a lot to your kids because your parents weren’t able to give a lot to you, like that’s a value. It’s not just a goal, but it’s a value. Or, you know, I actually have a lot of clients recently have been talking to me about this

of die with zero. They want to enjoy their money. The experiences that they want to have with their money, those aren’t really goals, but they’re what I would call values, and I think they’re a huge driver of the planning process as well.

Mike (07:53)

Yeah, 100 % that, uh, that understanding all that and like you said, you know, the values is really beneath and sometimes you, sometimes those are in conflict. A goal client comes in and says, you know, Oh, I want to do X. Well, you said your values were spending time with family and you know, you’re on this path to be able to do that more.

And now you come in and say, oh, I’m to buy this new car, but it’s going to mean that I’ve got to work a bunch of overtime or, you know, get a side hustle to be able to afford that. And it’s really the job, you know, of a good planner to kind of talk to you about that and say, yeah, we can if that’s now the plan, we can definitely, you know, switch and figure out how we can work that out. But you told me this was really

the value you had and as another planner says, you know, we need to be able to have those conversations where you say, you know, you may fire me for saying this, but you should definitely fire me if I don’t say this type of thing to you. you know, those are definitely things that need to be taken into consideration in any plan.

Amy (09:17)

Yeah, mean having so because honestly and a lot of people come to me this way, you know, I can do this myself. I just need you to tell me if I am I on the right track and that’s you know, and that’s true. You know this a lot of this stuff some of this stuff is not.

that hard. We’ve talked about that in past, it’s not that hard. But what is hard is looking at yourself in the mirror and validating that you’re on track with what you said. So it’s kind of having that partnership. So that is part of the planning process. That’s part of the feedback part of the process, not the actual building of the plan, but part of the feedback process of it.

What are some more of the sort of technical aspects of the plan that we dig into?

Mike (10:04)

So definitely starts with cash flow analysis, budget review, liquidity needs. Those are some of the underpinnings, making sure you know where the money is going. And a lot of times people have a general idea, but I’ve not yet met a client and even I can’t do this is tell you where every dollar is going overall.

That is a big piece of a financial plan.

Amy (10:39)

Yeah.

I will say I do have one client who is a retired Navy chief petty officer. He knows where all his pennies go. But like you Mike, I’m the same way. And that’s another point is when we go through the financial planning process, because I actually do have several clients that are very detail oriented auditors and accountants and chief petty officers who are very detail oriented.

Mike (10:47)

Alright.

Amy (11:09)

But the planning process is, you we’re dealing with large amounts of time. So we don’t have to get way in the weeds, but we certainly need to know, are you spending $3,000 a month? Are you spending $10,000 a month? Like there’s a big difference. And it may not seem like talking about cashflow and budgeting and things like that, like that’s probably not why you went and hired a financial planner, but that’s definitely where it starts.

Mike, what’s the next thing that you typically tackle in your financial planning process?

Mike (11:46)

Yeah, I’ll just throw one more comment on that is, you know, I like to kind of get the big things right with clients and set up like automated savings and investing, you know, that money gets pulled off first and then you spend whatever you’ve got left. So then it doesn’t matter if, you know, if you’ve got the money, you can go to Starbucks every day.

But you know that you’re taking care of the big thing. So You know around that is just liquidity needs These you know how much money you’re gonna need over a certain period of time We see that ebb and flow if you’re mid career in the military, know got five plus years to retirement You know, probably don’t have that huge liquidity need unless you know, maybe you next duty station you’re thinking you’re gonna buy a house but

You know, so that that fluctuates as you approach military retirement, you probably want to build up some extra cash that you have. And again, you know, when you do your approach ultimate retirement, it’s it’s the same thing. It’s it’s understanding, you know, having that money that’s not in the stock market, not invested because, again, stock market goes up and down, although, you know, recently it’s mostly been up.

which is great, but if you’ve got a need within five years, it really shouldn’t be invested.

Amy (13:18)

Yeah.

Yeah, and along the lines of, you know, what I’ll call risk management, mean, having enough liquidity to cover near-term expenses, kind of throw in that category of risk management. Some people hear that term associated with financial planning. like, what is that? Well, it’s managing all the risks, right? It’s managing investment risk, managing risks to your plan through use of insurance. It’s having an emergency fund or enough liquidity on hand.

Mike (13:37)

Yeah.

Amy (13:48)

go from there? mean, from here, I think, you know, I don’t necessarily tackle it in a linear process after this in terms of the technical aspects of planning. So I’m kind of curious, where do you head after you get these basics done?

Mike (14:04)

Yeah, a lot of times it depends on what the clients most interested in and where they are in the life cycle. If they’re approaching military retirement and that’s why they came in, it’s like, okay, let’s focus on those decisions that are going to come up because of retirement and look at survivor benefit plan and things like that. If it’s just a general, hey, we think we need some help here.

then let’s start looking at taxes, which is always a big thing. And I find that’s one of the biggest ways to improve somebody’s plan is to come up with a good tax strategy for the next 10 or more years. What are they contributing to retirement, tax deferred accounts, and Roth?

tax-free account. So coming up with that and putting that investment plan in place is really where I kind of go next in my planning process.

Amy (15:16)

Yeah, yeah, I do like to be on top of that first because a lot of times, and I always ask to see my clients’ tax returns, a lot of times I’ll see that either they’re a ton of money back or they’re getting hit with a big tax bill at tax time. So I like to try and, if it’s early in the year especially, I like to try and…

adjust withholdings if it makes sense for them. So that’s just small stuff. But to your point, like taxes, quite honestly, and I’ve seen literature to back this up, my position is that taxes are probably the number one impact to your plan, other than your decisions and your behavior. So aside from your decisions, your behavior on a daily basis and over the long term.

I taxes are just a huge impact to your plan. And it makes a lot of sense to go there next. I do handle tax planning sort of last, but I do try and hit the near term tax impact stuff pretty quickly in the process. Where do you go after that?

Mike (16:24)

Probably looking at their medical situation and understanding. If they’re in the military and they’re still covered by Tricare, not a lot of decisions around that, but still just understanding and making sure that it’s covered. And then again, somewhat depends on the goals.

and how close they are to the retirement planning side. If they’re post-military retirement, then let’s dig into, okay, how long do you want to work? How do we come up with that income plan so that we’re financially free and whenever that desire is to be able to retire?

And I find a lot of people just want to, you know, have the confidence that, hey, you know, by this date, if I want to retire, I can. know a lot of people that I talk to are like, you know, I don’t really plan to retire. But, you know, having an understanding of that is probably the next thing I tackle.

Amy (17:44)

Yeah, I mean, a lot of times I find that that’s like the number one question that, and they think that like, you can just start there. When can I retire or can I retire at X age? And you know, that is something that you get to, but I feel like there’s, you you certainly have to go through the, you know, the spending and all that kind of stuff ahead of time.

and understand what retirement income streams are available to you, what assets are available to you, and things like that. But I definitely know that that’s often why people show up at our doorstep looking to work with us. One of the things that sort of bounces around in my process is doing an insurance analysis. You mentioned employer benefits like the medical care, vision, dental, and that’s all part of it. The employer benefits piece of things.

But I also like, you know, relatively early on, as early as I can sometimes, depending on the client, I do like to get a feel for how to protect the plan. So the plan doesn’t have to be perfect to get an idea of whether or not the plan could sustain the shock of losing one of the people in the couple, or if it’s a single person who has certain financial goals or obligations. I like to understand that pretty early on because if we need

do something, I feel like we should be starting that process sooner than later. What are your thoughts about that?

Mike (19:13)

yeah, life insurance, that’s that’s incredibly important. And it is something that, you know, I do wrap into this whole process relatively early on to understand again, like you said, should something happen to a member of, you know, the couple or that that single member? What are the impacts if there’s anybody that relies on their income? Are they covered enough?

to take care of whatever those remaining needs are. So yeah, that’s definitely an important piece.

Amy (19:51)

What I find interesting is as, know, we’re not done with topics, but we don’t have very many topics left. But, you know, what’s interesting is that we haven’t touched on investing yet. Like that’s, you we’ve, we’ve waited. And what’s so interesting to me about that is a lot of this industry focuses solely on investment planning. But, you know, here’s two financial planners. We have yet to mention it in the process. Tell me your philosophy around investments and how that fits into your financial planning process with clients.

Mike (20:22)

Yeah, the main thing I like to work with clients on is, let’s keep the investment expenses low. It is very, very difficult to beat the market over a sustained amount of time. So the goal really is to diversify, make sure you’re not too concentrated in any one thing, whether that’s, you know, oh, I got all my money in the S &P 500 fund.

Even if it’s, you know, that’s relatively well digressed by its 500, but they’re the 500 biggest companies. And you know, you may want to add some international flavor or some smaller stuff. And then it’s also making sure, you know, again, you’ve got a balance that those are, if you’re mostly in stocks.

you’ve got a lot more volatility that you could see over a short or even a longer term. So balancing that out with some fixed income, bonds, cash, et cetera, is important. again, it’s diversification, keeping expenses low, and then understanding that we’re not really out there trying to beat the market. that next great stock tip.

and finding the next Nvidia. If that’s what you’re looking for, you know, I’m not the planner for you. So how about you, Amy?

Amy (21:54)

Yeah, mean, I kind of like starting with my investment philosophy and I have had clients come to me who, know, can you just look at my portfolio and tell me whether, you know, it’s good or not? Well, you know, it depends on what your goal is. You know, if your goal is to be, you know, the person who has the highest returns ever, that’s one goal. If your goal is to ensure that your financial future is always funded, that is a totally separate goal.

and so my philosophy around investments, yes, you know, I agree with a lot of what you’ve said in terms of managing costs and diversification and, all that kind of stuff. But, you know, when you come to a financial planner, the, the plan comes first and then we figure out how to implement the plan and investments are sort of one tool in the toolkit for implementing your plan. And, you know, again, for me, investments, comes back to what the client wants to achieve.

if the clients and without more risk, right? So if the client has pensions that fully fund their current expenses and they can accept some risk, then okay, let’s have some risk, but let’s not be 100 % in the market unless that’s what they really want and they have aggressive legacy goals. So for the investment piece of things, it’s interesting because so much of the industry sort of starts there.

And quite honestly, is in my process, it is literally the last thing I do, is the investments piece of things, because it has to support the plan and it has to support what the client wants. Otherwise, you know, it doesn’t matter if you got 30 % year over year at what cost, you know, maybe if that’s what you wanted, great, you know, and by the way, I don’t know anybody who’s done that, but.

Mike (23:43)

Yes.

Amy (23:48)

But if your goal is to sleep at night and not worry about those things, then that’s a completely different goal. Mike, there’s just one more sort of element of the planning process, technical element of the planning process. And we loosely refer to it as estate planning, but there’s attorneys that are actually estate planners. We support that process. How do you approach estate planning in your

financial planning process.

Mike (24:21)

Yeah, first of all, I want to understand what the you know, if it’s a newer client, what they have in place and reviewing those documents and helping them understand. you really know what this means? And, you know, outlining that for clients, because a lot of times they’re not the easiest documents to read and understand. So. Showing them, hey, here’s what you have. And then talking about

you know why that may or may not be enough. You know, we’ve got a standard well. OK, your kids are eight and ten. Should something happen to both of you? You know, they’re going to end up with two million dollars each when they turn 18. Is that what you want based on these documents? Oh, no, you know, we don’t think they’re going to be ready to take on that much money at 18. Well.

That’s basically where you live and the requirements based on just having a will. Here’s what it is. So it’s just talking through those things and then working with the client to find somebody who can come up with documents that really support what they want. And so it’s sometimes working with the state attorney and the client to…

say, hey, these are the things that they’re trying to accomplish. How do we get those into documents and having the attorney complete those? How about you?

Amy (25:59)

Yeah, yeah, same kind of thing. you know, helping people understand what things look like for them, potential issues they might run into. know, we might be the first, the first time that somebody hears, Hey, it, know, everybody tells you to have a will, but no, I’m really telling you, you need to go meet with an estate planning attorney and you need to do it now because if you don’t X, Y, Z.

And you know, sometimes that’s the first time people have heard that. So it’s, and then the other thing that I often do, and I know that almost all other planners do it too, is being on top of the beneficiaries. And it’s not enough for the client to be like, yeah, yeah, I have beneficiaries. No, let’s go look. Look and see exactly what it says. Is it your ex-wife or is it your brother or sister because you weren’t married when you…

made that designation and now you’re married and it should be your spouse and you thought it was your spouse but you didn’t update it. So that’s kind of how I do it. The key takeaway to all of the breakdown of the technical pieces that I want to bring us back to is financial planning is a process. It’s not a one-time event. Yes, we go through these what I’ll call individual areas

in your financial plan, but they all touch each other. So it’s really hard to just look at one thing without looking at the other things. So it’s, it’s sort of, you know, you see the term comprehensive financial planning out there a lot. It’s not just a buzzword. It, there’s a reason that most financial planners are wanting to look at your entire financial picture, just because there’s so many parts that touch so many other parts. It’s really hard to just look at one thing at a time.

What do you think about that, Link?

Mike (28:02)

completely agree that, you know, as we talked through, was like, yeah, we got to loop back to this because this touches it. yes, it is all intertwined. And you can look at some of the things in silos. I mean, we did a couple, you know, episodes a few months ago on social security. And you can look at that in

you know, by itself and how do I maximize my benefit and, you know, maybe that’s important. But if it’s not, you know, integrated with the rest of the plan, it’s probably suboptimal, you know, without understanding everything else. So, yeah, it’s 100%. You kind of need to, you know, pull all of this together.

Now, can you can you not do that? Can you not have a financial, you know, fully comprehensive financial plan? Yeah, but that’s where that’s where things, you know, something that you didn’t expect to happen happens. And now you’ve got a bigger problem. And not to say that, you know, having a comprehensive plan is going to make sure everything’s perfect in the stock market keeps going up all the time and you achieve all your goals. You know.

things happen, but having that integrated plan and understanding all these things will give you a lot more, you know, kind of peace of mind that you’ve considered these things. And it’s all reflective versus, oh, I just, you know, I worry about my investments and as long as they’re doing okay, I’ll be fine. Yeah, maybe, but.

you know, if you’ve got a big hole in the insurance plan, you could lose a lot of those investments. So it’s just understanding, as you talked about, how integrated this all is and how it needs to be all pulled together to make sure you’re truly going to get what you want.

Amy (30:13)

Yeah, and I mean, there definitely are cases where, you know, people just want or just need, you know, a planner to look at one area. But it’s easy to ignore when the planner explains what the limitations of that plan are. But as a consumer of financial planning services, it’s important for you to not ignore.

that there are limitations. And if your planner doesn’t give you what those limitations are, then you should ask for them. Because again, everything does connect. OK, so Mike, we’ve gone through sort of the technical part of the process, right? So that’s sort of the back end stuff that we’re working on. Maybe we’re delivering recommendations to the client throughout the process. But what are the other sort of deliverables that somebody might expect?

throughout the throughout or and or at the end of the financial planning process.

Mike (31:10)

So depending on if this is really an ongoing thing or a single kind of one-time plan, as we sometimes call it, or a project-based plan, so we’ll tackle that first. It could be an output of a whole lot of pages from our planning software saying, based on what you described, here are the things. Here’s what we’re projecting.

And then a lot of times it’s, here are the recommendations that you or I might have. And we kind of overlay that so that they have something, OK, these are the things you need to do to make this plan come into reality in the actions you need to take. And so that’s what I kind of think of as the plan.

And then what would you say are kind of the outputs if it’s the ongoing financial planning piece?

Amy (32:12)

Yeah, I mean, think, you know, regardless of what a financial planner might call their service, whether it’s project based or a one time plan, you know, the process is forever. You know, and I did say at the end of this process, I should have said at the end of the first iteration, because there’s going to be a second iteration and so on and so forth, or there should be because life happens the minute that plan gets produced.

And so, know, in an ongoing process, know, you’re, you’re tackling, oftentimes I’ll see where we’re tackling one, one aspect at a time, but it’s based on the first iteration output, which was the plan, as you mentioned. So then going on, it’s a, it’s about adjusting and updating and staying, you know, monitoring.

regulations, changes in your life and figuring out whether or not those recommendations need to be changed or updated or something else needs to be added or something needs to be taken away. And you know, obviously it’s crystal clear for some things, taxes happen every single year. So every single year you need to be on top of taxes. Regulatory changes often come sometimes small, sometimes big with taxes every single year. Sometimes there’s changes to estate planning rules and things

like that either at the state level or the federal level. There could be you know changes in your circumstances so you need life insurance now but you didn’t before. So the ongoing planning process you know typically those I will see a lot of times and I do this as well.

The deliverable is, it’s smaller. It’s not, you know, the first iteration you get the whole plan, but then you’re, you know, you’re sort of working through and using smaller, what I’ll call smaller deliverables, kind of shorter deliverables. But, you know, so, so we’ve gone through the process of, know, what it is, the framework, how we work through it, the technical pieces of it.

the outputs, the recommendations, you know, moving into implementation because like all of this is great until you go set this plan on a shelf somewhere or let it, let it, you know, leave it in your.

in your financial planning software, or you download it and you put it on a hard drive somewhere and you forget about it. It’s not a plan until it’s implemented. So you have to implement your plan. going back to human behavior, it’s sometimes hard for clients to follow through in implementing. How do you help your clients through the implementation process?

Mike (35:01)

Yeah, I try to take the bite size approach. If we’re continuing to work together, it’s OK, here are the three things we’re going to focus on over the next quarter. And once those get done, we move to the next things in kind of priority order. And like you said, it’s that ongoing process. It’s sometimes.

being, having to remind clients, hey, have you funded this yet or have you changed this allotment yet? so it’s managing both what we’re going to do next and then making sure it happens when you’re working with the clients.

Amy (35:49)

Yeah, exactly. I do tend to work with a lot of folks who sort of want like that one time plan. And so for them, you know, it’s it’s just reminding them that it’s on them to implement. They have to get through the implementation, sending reminders from time to time. But overall, I mean, it’s it’s again, it’s not a plan until it’s implemented. And so, you know, that that’s the that’s the key takeaway from a financial planner to

you know the the dozens and dozens of potential clients that are listening you know you have to implement your plan that’s we need you to be an active participant in the process like I said in the beginning. Anything else Mike for our listeners today?

Mike (36:36)

No, I think that was a good kind of overview of what it is, what it entails, you know, what, you know, potential clients could consider when they’re thinking about, yeah, maybe I need to work with a financial professional. So I think that was a good overview.

Amy (36:56)

Um, I am pretty sure this is our longest podcast. I’m not surprised that two financial planners could, could talk about financial planning for this amount of time. Um, but I’m looking forward to, you know, our episode next time where we talk about, um, you know, how to, how to find a financial planner and how to understand the financial services industry a little bit better. So until next time, Mike, it’s good talking to you. Take care.

Mike (37:21)

All right, take care.