“What really makes for a good financial plan?”
“What all I should try to plan for?”
“What do most people do?”
I get these sorts of questions from individual who come to see me for the first time.
What do most people do? Nothing.
Or they wait, saying they’ll do “something” later. Waiting allows you to do nothing, but with dignity.
The good folks at the Certified Financial Board of Standards, Inc. advise that the best way to develop a solid financial plan is by “examining your current situation, setting financial goals and measuring your progress.”
Before I offer my own wish list for the contents of a healthy financial plan, let me ask a question: where is most of the money in this country? In the world?
No, I’m not looking for answers like “Manhattan” or “Silicon Valley” or even “Oak Ridge.” What I have in mind is the very important distinction that most of the wealth of this country is owned by corporations, companies and institutions of one kind or another.
It’s not that there are no wealthy individuals or families. But even then, much of their wealth resides in corporations, companies and institutions. After all, wealth has to reside somewhere.
If most of the wealth resides in corporations, companies and institutions, it makes sense to understand that much of what Wall Street does is to meet the needs of these prosperous (if inanimate) players.
And there’s at least one big difference between a corporation, company or institution and an individual or family. Life. Human life.
The financial needs and wants of inanimate institutions and human beings are similar in some ways. Both generally want to improve their earnings, improve cash flow, manage debt, minimize taxes, minimize risks and ultimately grow their wealth.
And most institutions and individuals have guiding values or principles that inform the goals they have for their money: a charity may want to fund cancer research each year. A father may want to send his son to college in three years.
What institutions generally do not have to face is limitations imposed by human life. Institutions don’t often get the flu, get sick, get disabled, get depressed, get weary or die in an automobile accident.
So my biggest disappointment with most financial plans is the failure to address the human side. That’s why I prefer to call it personal financial planning, as opposed to institutional financial planning.
Both personal and institutional financial plans should address insurance and risk management, budgeting, cash flow, debt management and investing.
But a personal financial plan must make allowance for humanity and human nature. In fact, I would go so far as saying this personal side should be emphasized.
That means including such topics as personal growth, communication, personal (non-financial) goals, wishes, dreams, stages of life, how to handle human illness, disability or death, fear and many, many others.
It’s not one or the other – it’s both.
But where the circles converge – That is the sweet spot of personal financial plannin