Financial planning comes in many forms and can mean different things to different people. But a few concepts hold true regardless of the form. 

A financial plan isn’t one thing - there are many forms. But no matter whether your plan is a single page or comes with an appendix full of charts and graphs, financial plans share a number of key characteristics. Or at least the good plans do. Here are a few things a financial plan is - and a few things a financial plan is not.

1. A financial plan should revolve around goals, not products.

A useful financial plan should be a tool which helps to clarify goals, and is built on sensible estimates  of things like savings, spending, returns, and inflation. It’s less a forecast and more a feasibility test: are my goals reasonable and in line with my current or future resources? After all, we invest our money so we can live fulfilling lives.

We have to be diligent about making our money work for us and not the other way around. In order to do this, however, we have to have a clear sense of what is important to us and where we want to direct each dollar. A financial plan can be very helpful in weighing competing priorities and finite resources.

Unfortunately, many financial services firms treat financial planning primarily as a way to sell products or “gather assets,” which is a phrase the industry uses to mean “bring in more money to charge a fee on.” Keep this in mind: most financial products are neither inherently good nor bad (the word ‘most’ is doing a lot of work there, I admit). And, if you're being well served by a financial advisor who is working hard to earn the fee you’re paying, then by all means use as much of that service as you can or want. But if there is only one way to achieve a goal and that way happens to be exactly what the person is selling, think twice.

2. A financial plan should be realistic about trade-offs.

A dollar spent on one thing is a dollar which can’t be spent on another thing. This simple fact means any financial plan which promises everything with no trade-offs is simply misleading. As mentioned earlier, a key part of financial planning is working through which goals are worth pursuing and the balance of priorities. These conversations and decisions are a large part of the value of developing a financial plan.

All too often, a ‘financial plan’ is just a rosy compilation of assumptions designed to get you to say yes to whatever arrangement is being promoted. If a plan can only succeed based on an unrealistic rate of return, or a much too low estimate of inflation, or the misrepresentation of any other number of variables, then it’s not a very good plan.

One of the most valuable exercises in developing a plan is thinking through scenarios in which a plan fails, meaning goals are left unfunded or under-funded. A financial plan should be a tool which helps you make decisions. If it’s not helping you clarify options or identify key behaviors (such as savings or realistic withdrawal rates), then it’s probably a tool to sell you something and not much more.

3. A financial plan is not one-and-done. 

As a person's life evolves, so should their financial plan. The mix of goals and priorities is sure to change over time, which means the financial planning process must be on-going, and the plan itself reviewed periodically. Did you identify saving for a child’s college tuition as a priority? What happens if, as that child grows, college becomes less and less important to their future prospects (Does a trade resonate with them? Is it entrepreneurship? Does a down payment on a house help them more?) Ideally that conversation would have already been had, and shifts and adjustments can be made accordingly.

But what happens when a financial plan is seen as less about a clients’ goals and more about revenue generation for a firm? This is the ‘set-it-and-forget-it’ approach. The 'plan' becomes a relic stuffed in a folder or drawer somewhere having been more useful to the sales rep than it was to the client. As long as the fee comes in or the commission gets paid, no more real thought is given to it.

These three things will help you make wise decisions about the process of financial planning so you can make sure you're getting your money's worth. 

Ultimately, this is why Core Planning is a fee-only firm. We think being transparent with how we are compensated is one of the most valuable things we can do for our clients. And since we are paid by our clients directly and not by another company or by commission, it's our obligation to give the advice we honestly believe is in the best interests of our clients. Everyone should know what they are getting and how much they are paying for it, especially when terms like ‘financial planning’ are being used.