What is Financial Planning?

Timothy Pope, CFP® |

Are you tired yet? I looked up at my three-year-old who I was carrying on my shoulders. The truth was, after alternating my 4-year-old son and 3-year-old daughter on my shoulders while hiking through the mountains in Brevard, NC, I was tired. We had taken a family trip on Memorial Day to hike and enjoy some waterfalls. My wife enjoys hiking for waterfalls; I enjoy hiking for views. While “planning” for the trip we covered all the usual points: the route to the trails, lunch, first-aid kit, hiking attire, timeline, diaper bag for the 1-month-old, you name it. We decided to hike two waterfalls that were both about 1 – 1.5 mi from the trail heads. We planned to hike one, have lunch and then hike the second one. Guess who failed to bring a detailed map of our trails? Yours truly. As a former wilderness trip guide in college, I take full responsibility for this oversight. Armed with a few screen shots of the trail, hiking experience and nonchalance we hit the trails. The first hike and lunch went without a hitch. The second hike, however, was a different story.

We made it to the second waterfall as planned. The kids enjoyed playing hide and seek among the rocks and taking pictures. When it was time to return to the truck, a question arose between my wife and I about a possible loop. I had planned to back-track the way we came in. She thought the trail was a loop. Without a detailed map of the trail and knowledge of the area, we decided not to back-track the way we came. This was a mistake. Several hours later, we were still hiking and the sun was beginning to descend. We hadn’t seen another soul for hours. All of our snacks and water were in the truck… at the trail head. This was supposed to be a fairly quick out and back trip. “Dad,” my 4-year-old asks, “when we get back to the truck, can I have a piece of gum?” “Yes, you can absolutely have a piece of gum when we get back to the truck,” I replied. What I was thinking however was “I have no idea where the truck is; where in the world is the truck?”

What Is Financial Planning? Timothy Pope | Cetera Investors
Enjoying the second water fall right before disaster strikes. Plan well!

Finally, we found a road and decided to hike along it to increase our chances of running into a fellow human and helpful signage. A short while later we were rewarded by the crunch of tires on gravel… a Honda CRV rolled towards me with the windows up and the occupants masked up. I let it drive by… Then I turned around and watched them roll by my wife too. OH. MY. WORD! For the next hour I kicked myself for allowing salvation to ride by me at 5MPH. I swallowed my pride. The next person we encountered I waved them down, and we caught a ride down the mountain in the back of their pickup truck. It turned out that we were about 10 miles from where we parked. Miraculously we arrived just as the storm clouds burst into a summer rain.

What does this experience have to do with financial planning? Planning for your financial future has a lot in common with planning a trip. The first step is to clearly outline your vision and what you want to accomplish. During this early stage, your financial plan will provide an assessment of your current financial position. This is your starting point. Initially, the steps you need to take may not be immediately clear. However financial planning is the process of uncovering the Next Best Step for you to accomplish your financial goals.

These steps may include how much to save and what type of accounts to save in. The steps may include which debts to pay off and in what order. Your plan will let you know how much you can safely withdraw from your portfolio during your retirement. An important feature of your plan is to help you identify possible threats to your success. After identifying potential threats to your success you will decide which risks to accept and which risks you are not comfortable accepting. Like any trip, the planning phase takes time, and this is time well spent. When complete your plan will paint a detailed picture of your financial life. It should include a current financial assessment and clearly define your goals, the steps you are taking to accomplish your goals, possible threats to your success and how you are mitigating them. Your life is dynamic and your plan should be also. Establish a regular evaluation system to monitor the implementation of your plan and your progress towards your goals. You may experience major changes after creating your plan. When this happens, remember to update your plan and re-evaluate your goals and make necessary course corrections. A few examples of major life changes include death of a spouse or loved one, substantial changes to income, a divorce, relocation, retirement, or a liquidity event. So, what is financial planning? Financial planning is the collaborative process of organizing and optimizing your financial resources to determine the Next Best Step you should take to accomplish your life’s goals. Now that you know what financial planning is, click here to learn how to create your financial plan.