What is a Comprehensive Financial Plan?
As you perform research online, it becomes increasingly clear that the best financial advice relationship for the consumer (you) is one that begins with comprehensive financial planning BEFORE forming a wealth management relationship.
At this point, the question arises - “What exactly is comprehensive financial planning?”
A comprehensive financial plan is a holistic approach to managing your money, involving setting goals, creating a plan, and monitoring progress. It provides a clear roadmap to financial independence.
This guide will cover the key elements of a comprehensive financial plan, the process of building one, and how working with a qualified financial planner can help you achieve your financial goals.
We help you navigate the retirement risk zone (10 years prior to retiring and first 5 years in retirement). If you like what you read in this guide, schedule a free consultation with us to learn more about working with our fee only, fiduciary financial advising team to build your financial plan.
Short Summary
Comprehensive financial planning is the process of documenting your financial life, wishes, and goals so that you can make investment and wealth related decisions that are consistent with those desires.
A comprehensive plan should involve budgeting, cash flow management, investment planning, risk management & insurance, tax planning and estate planning.
A comprehensive financial plan can be thought of as the "google maps" list of directions guiding you to your financial goals.
Table of Contents
The importance of Comprehensive Financial Planning
Setting Clear Financial Goals
Components of a comprehensive financial plan
Budgeting and Cash Flow Management
High Interest Debt Payoff Plan
Savings Plan
Investment Planning
Risk Management and Insurance
Tax Planning
Retirement Income Planning
Estate Planning
The Financial Planning Process
Establishing a Client-Planner Relationship
Gathering Data and Setting Goals
Analyzing and Evaluating Your Financial Status
Implementing and Monitoring Your Financial Plan
Putting the Plan into Action
Regular Reviews and Adjustments
Navigating Market Volatility and Economic Uncertainty
Collaborating with Your Financial Planner
Conclusion
FAQs
1) The Importance of Comprehensive Financial Planning
The legacy financial services model leads with wealth management and only very RARELY adopts financial planning principles.
As a consumer, this is a terrible trade off. It requires that you make one of the riskiest decisions you will be faced with in life (who will manage your investment portfolio) BEFORE you can ever obtain qualified financial advice.
What a terrible model.
You probably agree, which is why you are here reading this guide.
Which leads us to the importance of comprehensive financial planning.
Comprehensive financial planning is the process of building a financial foundation through which you can make confident, wise financial decisions. Without a financial plan, most of us are making highly consequential decisions with blinders over our eyes.
The process involves setting clear financial goals, auditing your personal financial behaviors, and creating a set of action items that when executed, lead to the financial security and stability you desire.
Most importantly, the plan is documented, monitored, reviewed, and adjusted to account for the dynamic nature of your financial and personal life.
Setting Clear Financial Goals
Establishing clear financial goals is the first step in the financial planning process.
(Your goals are your destination. Without a destination in mind, how do you know what route to take?)
When setting financial objectives, consider questions like:
How much would you like to spend on things like travel, gifts, experiences, or toys?
Would you like to own a home? If so, by what age?
Would you like to pay for your kids college (or other schooling)?
Would you like to have a vacation home?
If your kids live out of state, how often would you like to visit them? Or pay for them to visit you?
How do you envision your life in retirement?
These questions will help you create financial goals that are quantifiable (can be assigned dollar values) as well as aspirational. As with all good things in life, financial goals require work and tradeoffs.
Your goals have to be important and interesting to you, or it will be difficult to find the discipline and motivation to pursue them.
If you struggle with setting aspirational goals, it is entirely fine to set "negative goals". It is ok to work towards not running out of money in retirement, or not being dependent on the state / your children in retirement.
Starting by meeting your base needs may give you the inspiration and creativity you need to pursue more aspirational financial goals.
If you would like some assistance auditing your financial goals - click here to schedule a free no obligation consultation.
2) Components of a Comprehensive Financial Plan
Once you have established your financial goals, it's time to identify if your current behaviors will allow you to meet those desires. The first step of this process is to perform a thorough audit to check if you already have a system in place to attend to the following elements of a comprehensive financial plan:
A) Budgeting and Cash Flow Management
Budgeting is the practice of identifying your spending patterns. By tracking income and expenses, you can identify if you are overspending, saving, or just making ends meet.
The importance of budgeting and cash flow management cannot be overstated.
A budget does not need to be a set of rules or restrictions.
It is simply a system of tracking where your money is going so that you can make informed decisions regarding your spending or earning habits.
The first and most important action a qualified financial advisor will take is helping you estimate and verify your household budget.
Every dollar you save becomes a dollar you can invest.
It is therefore the CRITICAL FOUNDATION of any persons’ financial success to optimize for their savings rate first and foremost.
B) High-Interest Debt Payoff Plan
The most reliable way to payoff high interest debt is to use a budget.
Use your budget to pay off high interest debt, freeing up cash for saving and investing.
Reducing your debt payments allows you to increase savings, ultimately leading to more investable dollars.
C) Savings Plan
The more you save, the more you can invest.
More investable dollars mean a quicker path to financial independence.
Too often we focus only on the investing - trying to achieve the highest rate of return.
However, increasing your savings rate has a MUCH larger impact on your overall wealth.
D) Investment Planning
Once you have a source of investable money (savings), you will need a plan to address what accounts/account types to put your savings into, when to perform retirement account rollovers, how much risk to take with your investments, what type of asset allocation to use, and what individual investments to place your dollars into.
The account types you invest in will dictate the tax consequences you face when paying yourself out of those accounts later in life.
How much risk you take on with your investments will determine how much value you stand to gain, but also how much money you stand to lose.
Your investment selection should be in accordance with your risk tolerance, but even then the investments should be selected with care and precision to align with your overall investment strategy.
Finally, you'll need a method of rebalancing your investments over time as you adapt to changes in the economy or market environment.
Want to discuss how your investment plan might fit into a broader comprehensive financial plan? Click here to schedule a free no obligation consultation with our fee only fiduciary team.
E) Risk Management and Insurance
Term life insurance, employer disability insurance, and umbrella insurance policies can be helpful tools depending on circumstances.
Need for these tools will vary considerably.
While insurance can protect you and your loved ones from unforeseen losses, it's critically important to pay attention to the costs and fees of these products when evaluating whether to include them in your financial plan.
A qualified fee only fiduciary financial planner who does not make commissions through insurance sales can help you evaluate how insurance and risk management tools may fit into your comprehensive plan.
F) Tax Planning
You've worked hard all your life to save and invest. Why should you give the government any more money than you absolutely legally have to?
Tax planning in comprehensive financial planning seeks to minimize the amount of money paid to the government, thereby preserving the financial assets for yourself, your family, and your heirs.
Proper tax planning will afford you a higher income from your saved assets because you will be able to more efficiently withdraw them.
Staying informed about evolving tax laws and regulations is crucial for modifying financial planning approaches and maximizing tax circumstances. A financial planner can help you navigate the complexities of tax planning and ensure that you are taking full advantage of the tax benefits available to you.
Want to discuss your tax plan with a fee only, fiduciary, financial advisor? Click here to schedule a free no obligation consultation.
G) Retirement Income Planning
This is difficult to do accurately when young but becomes CRITICAL the closer you get to retirement.
Once retired, you will need to generate a minimum amount of portfolio income from investment assets - otherwise known as your Required Portfolio Income.
That minimum amount of income will dictate your savings rate and investment strategy leading up to retirement.
Retirement planning is the process of constructing a plan to guarantee financial stability during retirement. Comprehensive retirement planning ensures that individuals have sufficient resources to sustain their desired lifestyle during retirement and enjoy the benefits of their hard work and wise financial decisions throughout their lives.
H) Estate Planning
Estate planning is the process of determining how an individual's assets will be preserved, managed, and distributed upon their passing. It is a crucial component of a comprehensive financial plan, ensuring that your assets are allocated in accordance with your wishes and that your family's financial security is protected.
Estate planning can help you minimize taxes, protect your assets, and provide for your loved ones.
Assigning beneficiaries to retirement accounts and having a will or trust in place will save you and your heirs significant time and money when you pass away.
Click here to schedule a free no obligation consultation with our fee only fiduciary financial planning team.
3) The Financial Planning Process
Working with a qualified financial planner is critical. We recommend limiting your relationship exclusively to fee only, fiduciary financial planners with a certified financial planner designation.
A fee-only financial advisor charges fees for their services and does not receive commissions or other forms of remuneration from the financial products they recommend.
As a fiduciary, the financial advisor has sworn an oath to act in the client's best interest, ensuring that their financial planning is tailored to their unique needs and goals.
Establishing a Client-Planner Relationship
A solid connection based upon mutual values and trust is essential for effective financial planning.
Establishing a strong bond between the client and the financial planner ensures that both parties work together to create a comprehensive financial plan that is tailored to the client's unique needs and goals.
This should be done slowly and methodically, beginning with an extensive interview process in which the consumer first interviews the financial planner, and then the financial planner interviews the client.
Gathering Data and Setting Goals
The first step in creating a comprehensive financial plan is to create a financial dashboard where all of your financial information is housed in one place.
The dashboard should be able to create simple, visual reports to show the totality of your financial position so that you can make informed decisions.
Too often we house all of our financial information in our heads. The web of personal financial information expands and expands until it’s overwhelming leading to low quality decisions or simply paralyzing us into inactivity.
To create the financial dashboard, we go through a data gathering and goal setting process.
Documents requested may include paystubs, tax returns, employee benefit statements, investment account statements, wills, trusts, social security statements.
You can view our full document gather checklist here.
This data is used to create the financial plan that will support the financial planners' recommendations.
Analyzing and Evaluating Financial Status
The financial planner will analyze net worth, debt levels, savings rate, investment strategy, and other financial ratios to identify areas of improvement and develop recommendations to help the client achieve their financial goals.
We will then educate you on these metrics and explain the tradeoffs that must be understood before executing any of our recommendations.
Finally, once tradeoffs are understood and we come to a consensus, we will guide you through the implementation of your financial planning recommendations.
4) Implementing and Monitoring Your Financial Plan
Implementing and monitoring your financial plan is an ongoing process.
Your finances are dynamic and ever changing - therefore your financial planning efforts cannot be static.
Monitoring the plan involves putting the plan into action, crossing actions off your checklist, evaluating the results of those actions, and then repeating that process.
Regular reviews and adjustments are necessary to stay on track and ensure that your financial objectives are being met.
Putting the Plan into Action
To embark on your financial planning journey, you must first establish and document clear financial goals agreed upon with your financial planner.
The next step is to document the plan recommendations or action items that should be implemented.
From there we create "plan scenarios" that allow you to measure the effect of the actions you will take and compare those scenarios against your current behaviors.
Finally, have contingency plans in place that help you adapt to changes in your personal situation, the economy, or your health.
Regular Reviews and Adjustments
Periodic reviews of your financial plan are essential.
By staying informed about market conditions and working closely with your financial planner, you can make the necessary adjustments to your plan, ensuring that you remain on track to achieve your financial goals.
5) Navigating Market Volatility and Economic Uncertainty
Market volatility and economic uncertainty are inevitable, but they don't have to derail your financial plans.
Guidelines and contingencies in your financial plan should assist you in adapting to a changing environment.
You can (and should) continue to make progress towards your financial goals despite the challenges that may arise.
The closer you get to your retirement target, the more attention you should place on the defensive strategy of your comprehensive financial plan.
You can read our guides discussing Sequence of Returns Risk, The 3 Bucket Retirement Strategy, and How Annuities May Fit Into Your Retirement Portfolio for additional insight into how we recommend managing market risk.
Collaborating with a financial planner can help you navigate these uncertainties and ensure your financial security.
Click here to schedule a free no obligation consultation with our fee only fiduciary financial planning team.
Collaborating with Your Financial Planner
Your financial planner should educate and keep you current on market conditions as they relate to your financial plan.
This will allow you to maintain composure, stay focused, and not panic when life inevitably throws a curveball.
Make sure that you are clear on how frequently you and your financial planner will meet, what the objectives of those meetings will be, what metrics you will track to measure the health of your financial plan, and what you should do if you desire more attention from your financial planner.
6) Conclusion
Comprehensive financial planning is the most powerful tool in your arsenal to achieve financial stability. Setting clear financial goals, crafting a plan for your financial resources, and working with a qualified financial planner, will allow you to sleep easy at night. Take charge of your financial future today - engage with a financial planner and build your very own comprehensive financial plan.
7) Frequently Asked Questions
What are the elements of a comprehensive financial plan?
Creating a comprehensive financial plan involves assessing your current finances, setting financial goals and developing strategies to achieve those goals. A successful financial plan should include details about your cash flow, savings, debt, investments, insurance and any other elements of your financial life.
Why do we need comprehensive financial plan?
We need a comprehensive financial plan to give us direction, set measurable goals, reduce stress and maximize our savings and investment returns.
How is a comprehensive financial plan different from a retirement plan?
Financial planning is a broader term that encompasses many aspects of long-term financial stability, while retirement planning is more focused on developing strategies specifically addressing the concerns of a retiree.
A comprehensive financial plan takes into account all aspects of your current and future finances, whereas a retirement plan focuses on the specific financial decisions required to successfully retire. A retirement plan is just one component of a larger financial plan.
How do you create a comprehensive financial plan?
Creating a comprehensive financial plan requires setting clear financial goals, auditing one's current financial situation, maximizing their savings rate, developing and committing to a plan, accounting for future scenarios, and making adjustments as needed.
Is Comprehensive Financial Planning Required?
No - unfortunately most financial advisors will NOT create a comprehensive financial plan before crafting your investment strategy. In our opinion this is a GREAT oversight - it would be like a doctor prescribing you a surgery without ever doing diagnostic testing to find out what your ailments are.
Other Financial Planning Resources:
If you found the information above helpful, click here to watch my free Masterclass training that explains how you can increase your income in retirement by up to 30% and avoid running out of money in retirement.
