When asked what is financial planning, some think it involves investment management. Others believe it has something to do with taxes. Still others would say it involves planning to pay back debt.
In reality, they’re all correct. That’s because financial planning delves into all areas of the financial picture, including the way you spend, save, invest and pay taxes.
When a financial planner looks at the different areas of your life, that person will come up with different conclusions and strategies than another planner might. There’s an art and a science to financial planning. That’s why it’s so vital to find the planner that you connect with and can understand your own financial picture.
But, beyond that, I find that there are three common misconceptions which leave people unsure about committing to the planning process. Let’s delve into three misconceptions that you may have about the financial planning practice and why that matters to you.
Misconception #1: I’m here to judge the way you handle your finances
Financial planning is a unique process because we determine your financial, professional and life goals, and then develop a plan to help you reach them.
We’re not here to judge you or make you feel bad for financial moves you made or goals you dream about.
Too often, people hesitate to come to a financial planner because they’re worried that the planner will judge them in some way. That’s not how the process works. Nor does a qualified planner focus on the past – instead, we’re worried about what’s to come.
It’s why developing goals is such a key part of the process. With an understanding of where you want to go, I can help create a plan based on what you’ve done and what you will do. It’s actionable not judgmental.
Sure, as a planner, if you say you have a goal that’s unattainable under current circumstances, I’ll let you know. But we will also discuss how you can change your circumstances, business or plans in order to achieve the goal, if it’s truly important for you.
This is the first – and most important – part of the planning process.
Misconception #2: Investing is all about gains and losses
When investing, we’re taught about gains and losses. We want gains and we try to avoid losses.
That’s all well and good, but it’s not how many financial planners evaluate your investment portfolio. Instead, we want to know whether your portfolio matches your risk profile and whether it’s invested in accordance with your time horizon.
In other words, we want to know have you invested in a way that you will leave it be for many years, and that the portfolio will reach the size it needs when you’re ready to live off of the portfolio.
This drastically shifts the mindset of investing. Instead of gains and losses – since the market will rise and fall – we’re concerned with ensuring you have invested in tools that will keep you invested, committed and relatively secure in your portfolio.
This is why index funds have become so popular. They provide access to the right type of diversified risk level, with low costs, and that can be invested in for decades (as opposed to days).
This shift in thinking removes the need to worry about daily movements of the market. Instead, we’re matching your investment activity with the goals you have set for yourself.
Misconception #3: We’re only worried about retirement
Often people think of financial planning as retirement planning. Yes, it’s something that we do in the financial planning process, but it isn’t the only reason to seek out help. This is true for two primary reasons.
The first reason is that while some people want to have savings, they don’t want to ever retire. Financial independence is far more important than anything else. In such a case, we may use retirement planning tools to ensure financial independence, but we won’t focus on retirement.
The second reason is because there are numerous ways to build wealth. Maybe you’re saving for retirement, Or maybe you’re building a real estate portfolio. Or creating multiple businesses. Or some other tool. Whatever the tactic, the financial plan will evaluate it to ensure it works with your goals.
If it does, then it’s to ensure it works with your goals in the most tax-friendly manner.
It’s not about what I want or think you need. Instead, it’s working with you to achieve your goals. And that can be all the difference between finding wealth and not.