WHAT'S "FINANCIAL PLANNING" ALL ABOUT?

I am often asked to define "Financial Planning". Simply put, it is the process of defining financial goals , developing a realistic plan to achieve them, implementing the plan and monitoring it over time. Let's see why each step is important.

Tragically, most people rarely set personal goals. The closest, for many, is to pursue a degree. Students who truly commit to obtaining a specific degree by a certain date have a far better probability of doing so than one who simply “goes off to college”. Without a goal, one is easily sidetracked. Would you rather be highly productive in your 20's or still “finding yourself, with six degrees, at 40? (Did I mention living at home?...in your folk's basement?...with those 6 degrees?...but without the $ 150,000 they cost to acquire?)

To be a goal, your objective must be clear , specific , written , and have a date for attainment. Anything less is a dream , part of your “wish list”… and is rarely achieved.

A good way to remember how to structure or define a goal is to make each true goal “SMART”. SMART is an anachronism for:

S pecific
M easurable
A ttainable
R easonable
T ime sensitive

So, let's work one of these through, converting a “dream” to a real goal.

Step 1: If your “goal”, as you presently define it, is to own a Porsche… it's NOT a goal, it's a dream . Not because you can't afford it now, but because you've only vaguely wished for it. If you ever want to own one, you must take the steps to convert its acquisition into a goal. You make it a goal by: examining your finances; defining the year, model, options; the delivery date; and how you will pay. See the difference?

Step 2 : Knowing where you want to be and when enables you to map a course and select the means of getting there. I personally sail boats and fly planes. Before heading for my destination, I've chosen the vehicle. I know if I'm traveling at 8 knots or 150. Either way, I prepare with the appropriate charts, GPS, and weather, planning to arrive on time.

If you want the Porsche, you need to budget, determine current cash and monthly contributions, calculate the rate of return your investments must earn until delivery date, and select the investment “vehicles” that can deliver that rate within your personal “Risk Tolerance” . You may have to cut other spending, sell other assets, or change the way you invest your money now.

Step 3 : Implement! You change your spending habits. You take the overtime or the second job. Make the changes. Fund the program. Then,

Step 4 : Monitor your progress.

Step 4 is important. We sent men to the moon many times but never without at least one mid-course correction . You'll need some too. Markets change, things happen. The best plan may need altered. The key to it all is that IF…and that's a BIG IF, you commit to the goal and allow yourself no “out”, when problems arise, you'll shift “on the fly” to make up for any short-fall.

If this all sounds great, but you don't know where or how to begin, that's where a professional CFP ® (Certified Financial Planner) comes in. It's what we're trained for. It may sound “odd” but I actually enjoy working with the things that make you miserable.

So, if you could use some help in setting or achieving some goal(s), drop me a letter or e-mail outlining your situation. You can also print off the “Investor Profile” form, complete it and mail it. (Presently, we do NOT have the secure site which would allow you to complete it On-Line). Once we establish a relationship, I can put the process to work for you. That's what financial planning's all about. Helping others turn dreams into reality . 

I'm Bill Peterseim, CFP ®, CMFC 

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