Financial Plan vs. Financial Planning

Financial Plan vs. Financial Planning

October 01, 2018

A financial plan can also be referred to as a financial roadmap. In a recent blog by Nate Archuleta, he draws a parallel between the trips he and his wife take to Telluride, Colorado, to financial planning. He talks about the preparation that goes into planning for a trip to ensure they’ll reach their destination and get the most out of it. Similarly, he mentions, a financial plan helps us to know where we are going financially and ensures that we know how to squeeze the most out of our resources to reach our financial goals.

As we think about financial planning with respect to setting goals, perhaps one of the most important things a financial plan does is it helps us to understand how to set realistic and achievable goals. The private island we are dreaming to one day own might simply not be possible without a career change! I think it is just as important to be realistic about our goals as it is to dream, not to put a damper on our dreams, but to better understand what is required of us in order to realize those dreams. The best way to kill a goal towards anything, whether it is a health / fitness goal, education goal, career goal or financial goal, is to find out that your goal is simply not achievable on the track you're on. It is best to find that out early so you can better align your dreams with your expectations.

A financial plan is where we start. Side note, if you have a written financial plan in place, one developed by a competent professional with in-depth knowledge of your financial situation, you are already well ahead of your peers. However, we are here to tell you that isn’t enough!

Do you remember the days of using Mapquest to get places? This was before smartphones and Google Maps, but after the days of using that huge atlas you'd keep rolled up in your glove compartment which featured a complex set of lines, dashes and colors which apparently represented roads, along with an occasional rip, tear or coffee stain which only further complicated things. With Mapquest, you’d type in your start address and destination and Mapquest would tell you the quickest general route to get there. This was revolutionary at the time. If you’re like me, you would actually print out the map and bring it with you on your trip to make sure you didn’t get lost. You would follow those directions to a T, and you wouldn’t veer off. Now, we just plug our destination into Google Maps. Our smart phones use GPS to track our location and Google Maps lays out the quickest way to get there.

Google Maps is amazing. I was in Chicago recently and wanted to get to Wrigley Field to catch a Cubs game, but it was on the other side of town. I didn’t want to drive if I didn’t have to, so I plugged in “Wrigley Field” in my phone and Google Maps gave me not only the route to get there, but several different ways of transportation, including public transportation. It told me exactly where to walk to get to the bus, what bus to board, what time the bus would be there, which street to get out on, where to walk to get on the train, what train to board, what exit to get off at, where to walk to get to Wrigley. Essentially, I looked down at my phone from the time I left the hotel, followed everything it was telling me to do. An hour later, I looked up from my phone and BOOM, I was at Wrigley Field! How crazy is that?

But that’s not the only thing Google Maps can do, it can also update on the fly. It tells me when I’m driving if there is an accident up ahead and what is the best route to avoid the traffic. Can you imagine back in the days of printing a Mapquest, if someone had told you about Google Maps’ functionalities? Mind blowing!

What does this have to do with a financial plan? Think of it this way: Google Maps is financial planning, and Mapquest is a financial plan. Financial planning makes adjustments along the way for a more optimal experience. You see, throughout our life, things change. You receive an unexpected inheritance, you lose your job, you get a raise, you have an unexpected pregnancy, perhaps a move you didn’t anticipate. Life events can bring a lot of change, and it is important that you account for these changes within your financial plan. The only way to do this is to meet with your advisor again. So how often should you review your financial plan?  We find that annually is ideal, and perhaps more frequently if a major life event occurs.

A written, detailed financial plan is the best way to put you on the path towards reaching your financial goals. Just don’t miss the important aspect of keeping your financial plan updated. This way you account for unexpected changes and it remains at the forefront of your mind.