33 – You Need a Financial Plan


Episode Overview:

Ken cuts it down to brass tacks. Now that you know the ropes for asset cultivation, it’s time to put together a game plan that will outline how you’ll accomplish your goal. A financial plan will reveal where you are on track and what short comings you may have. Ken breaks down the process and key elements of a financial plan. Where are you, what are your priorities, build out a plan centered around these points. Ken covers all the touch points of financial planning and how to construct one.

Transcriptions are auto-generated, please excuse grammar/spelling!

Happy day to you. This is Ken Kaufman CFO and I am thrilled you’re here for episode number 33. You need a financial plan. Yes, that’s very direct. And I’m telling you, you need a financial plan. Everybody needs a financial plan. Why? Because when you sit down and you build a plan, you now clarify where you’re going, even though you may not be able to see into the future all the way and exactly where you wanna be, directionally. Your plan can get you on the path that’s gonna help you get to your desired goals, and objectives, and everything you wanna accomplish with your life. And that plan is gonna help you get there faster, more effectively, hopefully, eliminate the number of mistakes or things that come up that you don’t know how to handle and deal with. The plan clarifies so much for you in the process.

So, building a plan helps you also see exactly, or I should say, within a ballpark of exactly what you’re gonna need to do in order to accomplish your plan. It’ll show you where maybe you’re on track or even ahead of pace of accomplishing your plan. And it will show you where there are gaps, or shortfalls, or constraints to accomplishing what you desire. All of that is helpful to know the sooner the better so that we can take action, and we can continue to tweak and change our plan for our financial lives, that enable all of the rest of the parts of our lives so that we can accomplish everything we wanna accomplish. So, let me break this down into basically the key elements of what a financial plan is and how this process works.

So, the first thing you’ve gotta do in building a financial plan is figuring out where you are. This would be a cash flow statement of what’s happening in your life in terms of how much is coming in and how much is going out. It also is a statement of your net worth or in the business world, we call this a balance sheet. It has all of your assets, all of your liabilities and assets minus liabilities equals net worth. And ultimately, the objective of financial planning and helping you accomplish your goals in life is to increase and build your net worth, that will enable you to produce the amount of income that you need to be able to accomplish everything it is that you desire. So, that first one is figure out exactly where you are and get your picture clear. The next is, is as best as you can, determine your priorities and your goals for the rest of your life. Yes, I understand that that can feel very overwhelming, maybe even a little confusing. And there are so many variables still out ahead. However, you’ll find that when you go through this process, you’ll be able to directionally start to really hone in on some of the things that are the most important to you and you can start to plan accordingly, and organize your whole financial life, and get it directionally pointed as efficiently and effectively as possible toward helping you accomplish your goals and your priorities in life. So, again, we figure out where you are. Next, determine those priorities and goals, and where you wanna go with your life. Then the third one is, is to build out a plan to help you achieve these goals. And there are several points here that I wanna hit on, just very briefly. And most likely, I’ll be doing an episode on each of these points that are critical components to your financial plan.

First is income and cash flow planning. So, think of this as budgeting but on steroids. The second is protection planning. So think about this as buying exactly the right amount of insurance at the very lowest price possible and mitigating all the other risks surrounding your life to keep you on the financial track that you need to be on to accomplish your plan. Third, debt and credit planning. Think of this as making sure you’re maximizing your credit score, and creating the best outcomes possible when you need to procure debt, and when you need to move forward and start to pay off and terminate your debt. Fourth, major financial goal planning. This includes preparing to purchase a home, retirement, education. Really think about this as a clear plan through the end of your life that shows you what it’s going to take you to fund your children’s life events, like marriage, missions, education, also to fund your retirement, and to fund other key goals and objectives that you have in your life. The next item, number five is investment planning. And think of this as a tool that allows you to maximize your growth and returns while mitigating risks and risk exposure as much as possible. There’s lots of tools and ways to accomplish this.

Next is income tax planning. And think about this as paying only what you should owe and not a penny more by leveraging the tax code to your benefit as much as possible. And depending on your tax bracket, your income, your assets, whether you have passive or active income and how much of each, you have ordinary versus long-term capital gain income, you have all of these different pieces of the puzzle. And then you get into deductions and possibly doubling up so that your standard deduction can take the role one year, and then you can double up on charitable contributions, and other things the next. There are so many different strategies that you can use all, you know, completely within the tax code, not saying that you would do anything illegal, or that you would go down a road that could get you in an IRS audit and create an issue. This is just leveraging what’s out there, getting a little bit of knowledge, a little bit of direction, and saving potentially some significant money, depending on your situation on taxes, and being able to get that routed into your plan to help you get even more on track to what you wanna accomplish. The next piece is estate planning. And this is about both protecting your family as well as your legacy. And then the last point I put in here is family financial planning tips and tricks. So, how do you teach your kids? How do you teach those around you that you love and you care about to apply some of these same principles into their lives?

Now, there’s all those sub-bullet points. We’ll take some time probably in the future on each of those. But then the next major component of building out a financial plan is now that you’ve got the plan in place, now it’s to start to execute on it, to take action, whether it means start saving money through your 401(k) at work or purchasing a certain type of insurance, or I could just go on and on here. There’s so many different things. Your plan will reveal what you need to do and when you need to do it. And so, this next piece is now that you’ve got the plan, now execute on it. And then the final one is, make sure to come back and revisit your plan at least once a year, and make updates, and adjustments. Maybe there’s been a job change, maybe there’s been an addition of a child, maybe there’s been maybe some tragic things, like a loss, or a divorce, or there could be any number of changes. And again, from year to year, some of those years, there may be very little change. And other years, it could be very dramatic changes. The key is to sit down once a year, go back and revisit.

So, with those as kind of the key elements and then those sub-points of exactly what’s included in your financial plan, there’s really three basic ways to go about building a financial plan. The first one is to do it yourself. So, in this podcast, I’m trying to provide, and not just this episode, but my whole impetus to create all of this content through this podcast is to try to give you some guidance on how you can do this yourself. And, again, all of the episodes in the future, I’m trying to help broaden perspective and give you some tools to execute this on your own. Now, it does mean that you’ve gotta keep up on annual changes in the tax code, investment platforms, different planning strategies. But depending on how complicated your situation is, it’s very possible and there’s a lot of great content out on the internet. And from, you know, talking to others in the profession that can help give you guidance so that you can basically execute on building this plan, getting the plan going and then updating on a regular basis.

The second option you’ve got is to hire a financial planner to help you create the plan. And this is where you’re finding somebody who hopefully is going to be what’s called a fee-only planner. And this fee-only planner is going to just charge you a fee, either an hourly rate or some type of a flat rate, to get to know your situation, might be two, three, four meetings to understand what’s going on. You’ll need to provide a lot of documents and information, copies of tax returns, build a net worth statement so that you can see all of that or this advisor can see all of that or this planner, and you pay them a fee, and they create a plan for you.

And I wanna recommend two websites specifically, where if you want to find a fee-only fiduciary planner that will just charge you to build this plan for you and give it to you, and then they may offer to help you execute on it or continue to give advice down the road, and that would be up to you to decide if you wanted to continue. But at a minimum, you could go in, give them your whole situation and help them understand where you wanna go with your life, and they build this whole plan out. The first one is called the Garret Planning Network. And this one, generally, you pay an hourly fee for someone to help. And the second one is XY Planning Network. And these have fee-only advisors that will charge you an hourly rate, or a flat fee, or some of them will even do a monthly subscription plan to build this plan, and then on an annual basis, come back and help you keep updating. I will put links to both of those websites and how you can go on there, and do a search. You can try to find somebody locally that you could go and visit face-to-face. But let’s be honest, in the world we live in today and with all of the virtual technology, you’re probably better off to find an advisor that’s just more aligned with you and has expertise and specialty in your particular situation. Both of these sites allow you to check locally, as well as to look for people with certain areas of expertise or specialty based on your situation.

And then the third option here on how to go about building a plan is where you can hire a professional, like I just mentioned, to help you build a financial plan, and then also continue an ongoing relationship with them, where they actually help you execute on it. For example, you might say, “I don’t know anything about investment, I believe that I should invest, but I don’t know how to do it. Here, I want you as an advisor to go and manage that money for me or bring me to a platform where that money can be managed. And I wanna follow your recommendations on that.”

So, given the three ways to go about it, first one is, do it yourself. Nothing wrong with that. Just need to keep up with things and make sure you’re not missing anything so that you’re maximizing the outcome that you get from your financial planning and all of the effort. The second one is hire a planner that will just build the plan for you and then you go execute. And the third one is, again, hire a planner, but then also have them help you execute on various elements of that plan that you may not have confidence in, or experience in, or maybe just don’t have the time to really focus on that and you’re happy to pay them to help you get this whole plan executed in motion, and go in, and then to review on at least an annual basis.

So, I will mention this too. There are basically two categories of financial plans. One is a very limited scope and the other is a comprehensive. And what this means, from a limited scope perspective, is you have a very acute need. You need to get it solved. Again, you can go to these types of planners that just charge you a fee and they can do a limited scope, dive in, help you solve a problem, or figure out the situation, and get a plan to handle that situation, not something on a very overall comprehensive basis.

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About the Podcast

Join Chief Financial Officer Ken Kaufman as he helps you track and hack your net worth. For those seeking financial independence, your net worth is one of the most significant measurements of success. Using his two decades of financial experience, Ken Kaufman helps you overcome your financial obstacles and look onward towards a better, brighter financial future.


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