You may hear some argue that robo-planners will not replace individual, human planners. I call them the “There’s no app for that” group.
Well, that is not what I had in mind.
But exactly what is “a financial plan”? Finding a good, workable definition is a challenge.
Textbooks used in colleges offering financial planning-related courses also generally do not define the term “financial plan.” For example, Sid Mittra, Anandi P. Sahu, and Robert A Crane, authors of Practicing Financial Planning for Professionals do not define what a financial plan is, but merely defer to the Certified Financial Planner Board of Standards’ definition of ‘financial planning’.
Can’t we define “financial plan”?
Yes. Investopedia offers this broad definition:
While there is no specific template for a financial plan, most licensed professionals will include knowledge and considerations of the client’s future life goals, future wealth transfer plans and future expense levels. Extrapolated asset values will determine whether the client has sufficient funds to meet future needs.
And Wikipedia gives more detail:
In general usage, a financial plan is a comprehensive evaluation of an individual’s current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans. This often includes a budget which organizes an individual’s finances and sometimes includes a series of steps or specific goals for spending and saving in the future.
So you need to project where your assets can take you to be sure you meet your future in good shape. Makes sense
And what is my definition?
A to do list or “action plan” that tells you what you need to change now so you optimize the use of all your resources to achieve your major, long term goals in the future.
So what does a financial plan look like?
If you paid to have a financial plan prepared, and have a complicated situation, you may get a glossy, bound book filled with projections, charts and graphs, plus text. While much of it may be boilerplate, it will tell you where you are going from now until you die, how your money will follow if you invest according to the plan, and what you need to change on taxes, insurance, and your estate plan.
At the other extreme, you can glean the essential steps and write them all on a PostIt note, which you then place in a spot you see often enough to remind you what to do:
- Maximize my 401(k) contributions,
- Set up and contribute to a Roth IRA,
- Review my investment allocation, use ETFs,
- Steer clear of any major credit card debt,
- Review my beneficiary designations,
- Sign an medical directive, and
- Save enough for a fun (not too expensive) vacation next summer!
In the end, it doesn’t matter how many pages or what the plan looks like; what matters is that you learn from reviewing your finances and change how you manage your resources so that improve your finances.
So, yes, a simple to do list could be enough, if you follow it!