What It’s NOT and What It IS

Humblepie_medium I’m convinced that men posses a tendency that occasionally, but predictably, propels a misnomer out of our mouths to demonstrate our obtuseness and invite a hefty slice of Thanksgiving-sized humble pie, lest our egos inflate beyond a manageable size.  Recently I was invited, in the presence of my wife and a few other couples, to join a group of men on an outing designed to reset our testosterone levels—something having to do with cards and viewing a football game on an over-sized television.

My eyes lit up, until I received a loving nudge from my bride reminding me that she was already committed that night and had asked me to manage the home front.  Not begrudgingly—because, indeed, I love the opportunity to get some quality time with my two adventurous boys, ages 5 and 6—I innocently responded that I was not able to join the guys because, “I’m babysitting that night.”  As it turns out, fathers are apparently not supposed to refer to watching their own children as “babysitting.”  Ahhhhh.  Lesson learned!

Words are important.  Words are powerful.  They can stop tears from running down the face of a little one and bind two people together for life, but they can also deflate a person’s will and manipulate.  Two of the terms in my vocational realm that are so often misused are “Financial Planning” and “Financial Advising.”  What is the first thing that comes to your mind when I ask, “What is financial planning/advising?”  My guess is that 65% of people assume the term is synonymous with the sale or management of investments by a stockbroker.  The other 30% probably think that it is the pursuit of finding the right insurance coverage.

It may be generous to assume that 5% of people have been painted an accurate picture of what true financial planning or advising really is.  One thing that makes accurate discernment so difficult regarding this terminology is that financial planning does, indeed, include investment planning and insurance planning.  But if the advice stops there, it’s not genuine financial planning.  The primary reason that financial planning has been viewed in such a modular fashion is that the behemoth financial industry realized, before financial planning even became a thing, that couching product sales in the appearance of sound planning and advice was good business.  But, at the end of the day, financial planning with a brokerage firm inevitably leads almost solely to the sale of brokerage products; with banks, banking products; and with insurance companies, insurance products.  Below you’ll find a glossary with more complete definitions of the fundamental tenets of true financial planning and advice; what it’s NOT and what it IS:

  • Investment planning—Is NOT merely the sale of stocks, bonds and mutual funds; it IS determining how all of the assets in your life—including stocks, bonds and mutual funds, but also real estate, commodities and entrepreneurial ventures—intersect with life and move you closer to your goals and objectives.
  • Insurance planning—Is NOT just about buying prescribed insurance products; it IS learning how to manage risk first through risk avoidance, risk reduction and risk assumption before transferring risk through insurance products.
  • Cash flow/budget planning—Is NOT just for the under-resourced living paycheck-to-paycheck; it IS the engine of every household’s sound financial plan, just as it is for every successful business.
  • Tax planning—Is NOT having your tax return prepared or jamming your numbers through Turbo Tax; it IS planning for the present, but also the mid-term and the long-term regarding payroll taxes, income tax, capital gains tax, tax deferral, gift tax, inheritance tax and estate tax.
  • Education planning—Is NOT sloughing a random chunk of money every month into an education savings plan to assuage your guilt that you’re too busy keeping your own financial house in order to apply much thought to the cost of your children’s education; it IS first developing a Family Education Policy (here’s how much mom and dad are willing to pay and the terms you need to meet to receive that help) and then establishing a deliberate plan to meet those goals, some of which should be saved in a 529 education savings plan.
  • Retirement planning—Is NOT slaving away at a job you don’t love so that you can shelve as much of your income as humanly possible in a 401k and IRAs to which you’ll look for financial salvation in a retirement that can’t come soon enough; it IS, first and foremost, finding a career that you can enjoy indefinitely so that you are always employable (the BEST insurance against running out of income in retirement), saving effectively for financial independence while also allocating dollars to enjoying life today and in the mid-term.
  • Estate planning—Is NOT sleeping through an expensive meeting with an attorney to have documents drafted that you don’t understand; it IS examining the impact that you’d like to leave on this earth and implementing tangible plans—yes, through wills, powers of attorney, advance directives and occasionally other trusts, but also—designed to create a legacy, no matter your age.

Speak well.  Plan well.  Live well!

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4 thoughts on “What It’s NOT and What It IS

  1. Tim,
    I appreciated all of your words on different aspects of planning. I would also like to add the words that I have used to re-frame the way I do business as a mortgage professional:
    Mortgage Planning: It is NOT just the sale of mortgage services; it IS understanding how your debt works and how it can be best organized and managed to help you achieve your financial and life objectives.
    Thanks for your great blog!
    Ryan McCarty

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