Thank you for checking out Telos Financial’s Plan for your Purpose financial planning blog for millennials. The purpose of the blog is to introduce financial planning topics I believe are important. I want to start discussions about that will educate, benefit, and improve your financial life. Ultimately, to help you focus on your telos!
I’ve worked in this business for nearly 10 years and now that I’ve opened my own firm, it seems everyone is asking me, “What is financial planning?” The common perception I come across is people thinking all I do is investment management. That’s part of the job, but it’s just one piece.
Financial planning is the process of gathering information between a planner and client, the planner analyzing it, creating and choosing strategies, with the goal of working together to monitor and adjust over time to stay on track and make any changes needed. The CFP Board provides a very defined process for professionals to follow. This is intended to be a comprehensive process and is time consuming. Some of the areas that are covered in this include estate planning, taxes, investment allocation, asset location, insurance, cash flow, risk tolerance, anything at all that touches your financial life. I recommend everyone have a financial plan and I recommend working with a professional prior to making any major decisions with your financial life.
In short, you can see investment management is part of the financial planning process, but it’s just one piece. There are risks and opportunities at every stage of life that exist and a relationship with a financial planner may help you to take advantage of these more fully. I’ll try to highlight the importance of the different areas.
Cash flow is important for many reasons, obviously you don’t want to spend more than you make. That’s going to crash even the best financial plan. In order to best help achieve your financial goals, spending may need to be reduced further to save more. There’s a double benefit to spending less; first, you may be able to save more. Second, if is your spending or lifestyle is more modest, it follows that you may not need as much to live on, therefore the long-term planning goals are lower. It’s a delicate balance between maximizing current spending or lifestyle versus sacrificing today to save for the future. Everyone wants to retire as soon as possible or be able to retire whenever she chooses, but not everyone is willing to do the work necessary to get there.
Insurance is critical because bad things happen every day. This is risk mitigation and is something everyone should be aware of their options. Health, auto, home, life, long term care, disability insurance these all protect us and those around us from the financial devastation that results from accidents, bad luck, or other circumstances. It is a choice to have insurance or not, but it is something you should be aware of.
Tax planning is important to be aware of to help reduce unnecessary bills. This is an area most families consult tax professionals for because it’s so convoluted and important. I recommend most people do so. I’ve yet to meet someone who loves paying taxes and paying a professional to be sure you’re not missing something is worth the expense for many. It’s not the number one priority, but a little planning and awareness goes a long way and can change retirement plans. This is intimately linked to asset location.
Investment allocation covers several areas. I feel the most important part is making sure you are invested as efficiently as possible to achieve your goals. That means taking the appropriate level of investment risk based on your risk tolerance and risk need. You should feel confident in your investment allocation and be able to cope with the volatility that will occur due to market fluctuations. We’re in the second longest bull market of all time and it may be the longest when it’s done; but it will be done some day and one goal is for you to be prepared. This ties in to your risk tolerance and investment horizon. Any investment involves risks, including the loss of principal.
Estate planning is a very broad area and is another area where an outside professional (an estate planning attorney) may be necessary. This is specific to every individual and is typically a difficult discussion, because you’re making decisions for what you want to have happen in worst case scenarios. Death and incapacitation are the two major ones. Who do you want to make medical decisions for you if needed? Who do you want to pay your bills if you’re unable to for a short period? You have the power to make these decisions or you can choose to assume the risks and deal with it as it comes. This is another area where I feel education is the key and each individual has to decide if they want to be prepared or not.
These are some of the main areas reviewed and is just a quick description. Relationships with financial planners are long term in nature and I find most families work through the steps over time. It’s a lot to digest.
Much of the planning process is educational. In a perfect world, everyone would have a plan and would follow it with great precision. In reality, the baby spits up, your flight is delayed, everyone’s busy, we don’t have time to deal with it so we put it off for a tomorrow that never comes. That’s where a financial planner comes in; they are your coach and guide to help steer you and help keep you on track, so you can focus on your career and family.
If this sounds like you and you are a millennial, young professional, or have a young family, Telos Financial may be able to help you. Contact us to schedule an introductory meeting and we can talk more in person. Telos is Michigan’s financial advisor for high earner and high net worth millennials recent college graduates, and small business owners.
Telos Financial is a fee based, holistic financial planning firm located in Plymouth, Michigan serving young professionals and families. Dennis LaVoy, CFP®, CLU® founded Telos in his tenth year as an advisor and now serves clients around Metro Detroit, Ann Arbor, and across the great United States of America.