34 – WHY You Need a Financial Plan


Episode Overview:

Whoa whoa whoa! We need to pump the brakes here. After last week’s episode, Ken realized he jumped the gun when it comes to financial planning. Ken started talking logistics and failed to outline the importance of financial planning. This episode hopes to rectify that. Listen in for Ken’s top ten reasons why you need a financial plan.

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

Happy day to you. This is Ken Kaufman and I am thrilled you are here for episode number 34, 10 reasons why you need a financial plan. I realized after what I published last week’s episode that was entitled “You Need A Financial Plan,” that I failed to give a nice, clean, compelling set of reasons to you for why financial planning is so important. I jumped over that to get into some of the key elements and some of the how-tos to financial planning but I failed, I think, to really lay out a compelling case to financial planning. I am going to rectify that now with 10 reasons why you need a financial plan. I am going to start with a life story from my own life that will hopefully help build at least the first 3 of these 10 reasons, if not more.

So we have to jump back almost two decades. I have been out of undergraduate school for four years and I was beginning to feel compelled to return to graduate school and to get an MBA. My wife was supportive of the discussion and it took us about a year from the beginning the conversation to actually make a final decision and going to MBA school. As we were looking at various options and applying to different schools and understanding programs as well as the financial ramifications of choices such as, would we do an executive MBA program that allowed me to keep my job which I liked and I was making pretty good some money for being a few years out of school and felt like I had some progress, professionally in my life, but going back to school is a sacrifice and we felt like ultimately it would work out for the better and it certainly has. I feel very grateful and certainly blessed and feel like that has helped create opportunities in my wife at least professionally, well personally in other ways as well. But, we looked at this and said, this is a financial decision and when we got an offer from the University of Georgia, the Terry Business School, it became very obvious that with an assistantship and with other things that we’re working out that we could have a shot at going back to school, leaving an income, me just going to school full time and my wife not working, maybe doing a few little things work wise but nothing significant, that we would be able to potentially graduate without debt.

So, we set that as our financial goal, that was our priority. We lived as inexpensively as we could, we took little odds and ends jobs here and there to do anything we could to earn an income. Had a great experience there and as we were approaching graduation we did end up having to take out some debt to keep up with rent and some things, took out a school loan and it was about a $10,000 balance as we were getting ready to graduate. My wife and I had just hoped, we had prayed that somehow we could pull up and graduate without debt. That was our financial plan. We did not do a lot of planning beyond that because who knew where we would go and work and where we would live? There were a lot of question marks but we had set that goal and made a very clear plan. Well it turns out I was involved in business plans and in competing in several business plan competitions, and we ended up, just as school was wrapping up, earning or winning $10,000 in proceeds from the different business plan competitions we’d participated in and either taking a first or second place price. So, when this happened, this significant windfall for us where we had very little income during this year we were back at school and you could have thought maybe we would invest in a new car and who knows, we could have done a lot more different things with that money, saved it to put a down payment on a home wherever we would be moving to, we, without hesitation, without even barely having to have a conversation, we took that money and we paid off the school loan, graduated, walked away free and clear with that degree in hand off to the very first opportunity post-MBA degree.
Now, reason number one that I want to pull out of this is, when you have a financial plan it allows you to align your behaviors with the best way to accomplish your goals. That alignment is so powerful and that is something that this plan created for my wife and I. We executed on the plan because it was already decided what the number one goal was and what we would do with any extra money that we had and it was just an easy decision for us. So, it aligns how we actually behave to the best way to accomplish our goals. A lot of times you see people who have set goals but fail to do the day to day activities or week to week or month to month activities to help them accomplish the goals. Having a very clear plan allows you to align what you do every day, every week, every month, every year with getting where you want to go.

The second reason why financial planning is so important is to bring alignment with spouse and in this instance it wasn’t that my wife and I had to argue or fight or disagree or have a lengthy conversation about what would we do with this money that we had won through these business competitions, we barely even had to discuss it because we were so aligned on what our plan was and what our goal was. Now, my son and I have done some research on this recently and at some point I will be publishing here on the podcast and talking through some of the research we have been working on, but one of the things we found that when doing research about what are the most frequently cited struggles that newly married couples have when it comes to managing their finances and what are some of the major drawbacks and challenges that they have, by far the most cited that we have seen so far is financial alignment between newly married couples. Fascinating little data point. So, number two is alignment with spouse.

Number three again that this process of having this $10,000 windfall come to us and the value they having a financial plan brought us was, it makes decision making easier and far less emotional. I mean, we did not even take a second thought regarding what would we do with these earnings that came in. Really again I am calling it a windfall because it wasn’t expected and it was just a huge blessing to us. No, not a lot of emotion, not a lot of debate. Again decision making, just a simple, easy, clean and clear.

Now, reason number four, and this may sound a little weird but reason number four why you need a financial plan is because it is wrong. The minute you hit save on your financial plan or your financial planner or advisor sends over what your updated financial plan is, it is wrong. And the reason why is because none of us knows the future. Whatever you put in as the estimated financial returns on your investments or how quickly you can pay on debt or exactly what your income is going to be or whether or not you need to pay medical deductibles one year to the next, there’s so many life’s variables but it is one of the beautiful things about having a financial plan is it’s wrong which actually empowers you to at least get directionally headed down the right way and be empowered to iterate along the right process rather than have to make major huge life changing swings back and forth with whatever is going on in your life.

Number five, it keeps you focused on a bigger picture, especially when you are feeling overwhelmed by the day to day grind of it all. Sometimes we just think, is it really worth it? I am working towards this long term goal or this medium term goal and is it really worth it? It is and having the plan allows us to stay focused and see that big picture and not get overwhelmed in the short term.

Number six, it makes life changes so much easier to address and you don’t have to start from scratch. So all of a sudden you lose job. Well, that is stressful. A financial plan can be updated rather than starting from scratch and scrambling and freaking out over the situation if it is gonna cause significant financial hardship. In fact, financial planning usually creates cushions in different places so that the impact of a loss of income for a short or even medium or long period of time it can be offset sometimes, pretty successfully.

Number seven, it gives you clarity and purpose behind everything you do financially. It is a why for everything. Why do you spend what you do on groceries? Why do you spend what you do on your children’s education? Why do you save on what you do for retirement? Why do you contribute what you do to your church, or to other charitable causes that you believe strongly in? It is an underlying why, which is so powerful and keeps you motivated and keeps you aligned with everything you want to do and everything you want to accomplish.

Number eight, it gives you a long term measuring stick with lots of interim milestones. Research has been done over and over, if all you do is set a long term goal that is going to take a long, long time to reach without some little carrots and some wins along the way, you will lose motivation and you will not get there. Your financial plan can layer in these nice milestones to celebrate all along the way and keep you motivated to keep going to your longer term goals.

Number nine, it builds confidence in your future. Stop and think about it. How confident do you feel about where you’re gonna be in 10 or 20 or 30 or 40 years financially, or 50 or 60, keep going to wherever you feel like you need to to answer this question honestly. Having a plan gives you confidence about where you are headed and how you need to get there. Even if you do not know exactly how you are going to accomplish it yet or you might plan but we just know these things are just gonna change and life changes and their iterations that come, confidence is so powerful when it comes to reducing stress and anxiety around money.

And number 10, having a financial plan forces you to set your sites on the ideal so that you can deal with the real a little bit better. In other words, the ideal is setting these nice long term horizon goals but when challenges come up today and they’re a struggle and we are fighting through, knowing what our ideal is, and knowing that whatever we are facing today that eventually we are going to be able to overcome that and eventually we are going to be able to move toward that ideal scenario is very empowering.

So, that is it. There’s the top 10 reasons why you should focus on financial planning and have a financial plan in your life. If any of these sounds desirable, or possibly even helpful or may be even game changing for you, just keep listening on to the podcast. I am going to be giving you what you need to know to either do it yourself for all you DIYers out there, or give you some tools and some empowerment to hire and manage the process with a professional, to know who to hire, what expectations you should have for them, what deliverables you should expect, what timelines should be included, and generally speaking what the cost of that advice and that direction from a financial professional would cost. So, please subscribe to the podcast and please feel free to send me a…any of your questions or comments as we progress through this financial planning process. I promise that if you could send that over, I will do my best to try to work answers into any specific questions that you have. Just send that to ken@networthhacks.com. Many many thanks to you for joining today. This is a wrap for episode 34. Happy day.

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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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