When it comes to helping clients create lasting financial realities, I’ve always envisioned financial success as a house. Just like a real house, your financial house can get dirty or need a remodel, and should always come with an initial plan if you want to be successful.
Over the years I have developed four key pillars to creating successful financial plans. Understanding what your finances require is the key to creating lasting financial realities.
Before we even begin diving into a client’s investment history, I believe it’s important to create a blueprint and establish a foundation built on who a client is, and what they want in the future. This phase involves a lot of Q&A with clients as I begin to discover who they really are, and what they want their financial realities to look like.
I often use this phase to understand what their milestone goals are personally, which always relates back to their finances (i.e. if they want to build a vacation home before they retire, fund a grandchild’s college experience, develop a charity, start a second career, etc.). Understanding a person’s mindset is one of the fun parts of creating a financial plan.
Main Floor: Strategy
Now that we’ve gotten to know one another, and we’ve got our financial targets in place, it’s time to bridge from your vision into reality. This is the time when we break into those investment portfolios, income/tax statements, breakdowns of your expenses, and a list of all other assets.
From there, we’re going to come up with a complete financial plan that lists what you’re spending, what you’re saving, and how long it will take to reach milestone goals. This is the time where we may reevaluate the mindset and your blueprint to ensure those dreams can become realities.
Top Floor: Tactics
Tactics is the place for action. Here we examine the specifics on how we’re going to make this financial plan work for you.
Here, we’re going to get into tax laws to understand when you should be withdrawing from your IRA, 401k, or when you should be taking social security, so we can maximize your finances.
Another area we consider here are your expenses. I like breaking expenses down into survival, lifestyle, and legacy expenses. Survival expenses are your home, food, necessary bills, etc. Lifestyle expenses cover things like travel, dinners out, and other forms of entertainment. Finally, those legacy expenses may be things you intend to pass down generationally, such as a home, investments, or a trust fund.
The biggest component of tactics is not just having them, but sticking to them. When markets change, or interest rates move, it’s crucial to stick to your tactics and understand that the strategy we built the ground floor on accommodates for the fact that nothing is stagnant. That’s why the plan has four parts. Embracing the tactics and understanding their value in the long run is key to accomplishing your financial dreams.
It’s great to have a plan. You’ve built a beautiful financial plan that encompasses all you hope to do with your life. However, life doesn’t always work out the way we want, and things change. People get sick, people pass away, divorce happens, and job loss is a real thing.
We can’t construct a plan and move forward 5, 10, sometimes 20 years and hope it’s complete because we know things will need to be adjusted. Which means we need to track this, and usually you do so on a year to year basis.
When you build a home, you recognize that the roof won’t outlive the house. This is an area we improve and repair regularly to maintain the rest of the house. The same goes for your financial house. So, don’t be afraid to make these changes. Your future, and your house, will thank you.
There you have it. Here are the four key pillars to developing a strong financial plan. If you have any questions or concerns about whether your financial plan has all four levels, I encourage you to contact your financial advisor or reach out to us here at Heller Wealth Management.