Financial planning, by definition, is the process of determining whether and how an individual can meet life goals through proper management of financial resources. Furthermore, holistic financial planning should encompass pertinent topics such as the following five broad planning concentrations derived from the CFP Board:
- Tax Planning
- Retirement Planning
- Investment Planning
- Insurance Planning
- Estate Planning
This is not an all-inclusive list, but these are the fundamental topics which are essential in creating a holistic financial plan.
When working with a financial planner, it’s important they implement a holistic approach. Each of the above sub-categories are important on their own, but when collectively taken into consideration, they allow for an advisor to plan for the big picture.
Too many individuals believe financial planning is solely picking the right investments. While investment selection is a crucial component of the planning process, if there is no consideration in regards to the other disciplines, it’s not possible to adequately plan for the big picture.
For example, assume an individual is working with an estate attorney to ensure their will is drafted properly. If they haven’t worked with a financial planner, they may not be transferring assets to their heirs in the most efficient manner. E.g. It may make the most sense from an estate, investment, and tax perspective to leave high income earning assets to an heir in a lower tax bracket. By doing so, the heir inheriting the asset will pay less in taxes in comparison to an alternative heir that may be in a higher tax bracket. While an heirs tax bracket isn’t the only factor to consider when transferring assets, this is an option that may have been overlooked if they hadn’t taken a holistic approach to planning for their future.
When considering investments, there’s a difference between investment “picking” and investment “planning”. With true investment planning, there must be a goal that we’re working towards and investing for. If we’re investing with no particular direction or goal in mind, we are not truly being as efficient as possible with the decisions made. There’s a lot to consider when discussing investment planning such as time horizon, account types, age, and risk tolerance to name just a few.
In the upcoming weeks, we will dive deeper into each of these planning concentrations to better understand how we should be planning for our goals and what considerations should be integrated into the process.
Ben and Derek
Co-Founders and Owners of Aspire Wealth
Long-Term Care Insurance
