Adds for financial planners are everywhere. But many are still unclear as to what they actually do. Here we will discuss the main aspects of financial planning and how hiring one can help bring you closer to financial freedom!

The Four Areas of Financial Planning

• Protect What You Have – It makes sense to me that we must protect what we already have before we look to the future.
• Know Where It Goes – Since we spend money nearly every day, it’s important to know how much where we are spending and what we are spending it on.
• Make It Grow – Of course, investments are an integral part of Financial Planning, but you can see they are not nearly as important as some might have you believe.
• Independence and Dignity – We want to live out our entire lives with financial independence and dignity, or said another way, we don’t want to live off our kids in our old age.

Protect What You Have

Understanding the protections we have for our assets and making sure they are structured appropriately seems to make common sense. No bank lasts without locking the vault, and no family will become financially successful if they aren’t protecting their assets in a similar way

There are two primary asset protecting tools: insurance and estate planning.

When I say “insurance,” I mean insurance to address all different kinds of risk. This includes your auto and homeowner’s insurance, and your umbrella policy which protects you against lawsuits and other forms of liability.

Whatever the potential cause for liability, we want to know and understand the risks we are taking so we may consider buying insurance to cover those risks. Life insurance is also important – but only if we have other people in our lives who depend on our income.

This is most commonly your spouse or your kids, of course. And notice we are saying they depend on your income. If they depend on your assets, they are likely the heirs to your assets, so life insurance may not be necessary.

Estate planning does something different: it allows you to make decisions at times when you otherwise wouldn’t be able to. This includes determining what and how your kids will inherit your wealth. 

Through the standard package of estate planning documents, you can make these decisions today in a clear and legally enforceable manner.

Know Where It Goes

This is the scary one. Nobody likes to look at their spending! 

But that is exactly the reason that knowing your spending is so important. If you know that you normally spend $2000 per year on clothes, and this year you have already spent that amount, you will be forced to consider the significance of your next purchase.

In other words, you will begin to weigh the actual utility value of your purchase vs. the cost.

Once you’ve done this for a short while, it will be liberating. No longer will you be spending $40+ on lunch when that is not something you truly value.

So, how do we get there?

We must track our spending. This gives us, at a minimum, the price tag of our current lifestyle. If we get further into this process and assign categories to our spending, we gain even more knowledge and the end result is that we spend less while finding much greater joy in our spending.

We must track our spending to do financial planning right!

Make It Grow

This is our Investment Strategy.

The Investment Strategy that comes from this includes an asset allocation that, historically, will get you where you want to go along with a widely diversified approach that includes rebalancing on a regular basis.

We must also be diligent about the investment vehicles we use as well as our service providers and overall structure.

It’s no small feat to manage a portfolio well, but the effort should not be directed at doing “what’s smart today” or even changing the portfolio very often.

Independence and Dignity

This may sound more like an outcome than an action, but we must know what to do today in order to live out our lives with Independence and Dignity.

To do this, we must at least guess at all of our expenses for the rest of our lives including: will we pay for our 5-year old daughter’s wedding? What if Mom has a healthcare issue? What do we really want to do when we retire?

Failing to include realistic expectations over our full lives destines our planning process to failure.

Once we have built a “base case” of projections for the rest of our Financial Lives, we can then play around with “what-ifs.”

What if we take a 2 year sabbatical? We can simply plug this into our model to see how it affects us long term.

What if one of us retires much earlier and we downshift our cost of living? Simply plug it into the model.

And on and on. You see, it’s only at this point, when you have your lifetime projections built, that the true planning can begin.

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As fiduciaries, we’ve taken an oath to prioritize your financial well-being above all else. We’ll treat you with the honesty and integrity you’d expect from someone with whom you are entrusting your future

Joseph Vecchio, CPA, CFP®, MBA, the founder of Shore Financial Planning, started his investment career in 1998 as a professional trader/money manager on wall street. He believes in a passive investing style founded on academic evidence. 

Joe takes pride in protecting people from financial predators and helping them make smart financial decisions. We will provide you peace of mind through conflict-free, value-added financial, and tax advice.