What is Financial Planning?
February 20th, 2020 | 4 min read |
This may just be the golden question after I say, “I’m a Financial Planner”. Too often, I see medical professionals focusing on only one piece of their finances at a time, and sometimes at the expense of all the others. Maybe the subject of concern and why they come to me is student loans or credit card debt. Maybe it’s investments and worry about what the market will or won’t do. The thing is, pain in one area can cause us to make rash decisions without taking into account all the factors at play.
Another problem is, traditional financial advice doesn’t tend to solve this issue. Many financial representatives will advertise that they offer financial planning yet only focus on the product sales. When this happens, you’re left with the pieces of your financial life that are disjointed, and potentially worse, working against each other. What about your cash flow? How much are you saving? How much are you spending? What about the other areas of your financial picture? At the end of the day, does this all make sense so you can achieve the things you want in life?
If you don’t know the answers to these questions, how do you know how much you’re going to need in retirement, or what you need it for in the first place? Rather than fixing one financial pain at a time with a band aid, I find it incredibly important to take a full scan of your financial situation.
Enter trustworthy financial planning…
Good financial planning takes into account all the areas of your finances (cash flow, debt planning, insurance, taxes, investments, the list goes on). When you put all the pieces together as one comprehensive approach, that’s when the magic happens.
How can financial planning help? Consider this,
Amy is 32 with 215k in student loan debt. She was just hired by a private group practice as a pediatrician.
As her financial planner, I first need to find out what drives Amy – what are her values? What are her goals? What type of lifestyle does she want to maintain now, and what does she want in the future?
Next, I would be looking at Amy’s overall financial picture, starting with her current savings habits, expenses, and monthly cash needs. With her student loans, that balance is quite high. Comparing it to her income and family size, would it make sense to go for forgiveness (a long-haul at a private practice, but could make a ton of sense depending on her situation)? If we’re not going to pursue forgiveness on her student loans, should we just refinance with a private company and pay off the balance aggressively to minimize interest?
Given that we want to maintain a great lifestyle for Amy, both for current Amy and future Amy, how much should she be saving? Where and what accounts should we be using? Should Amy prioritize savings in her 401(k) through work, a Roth IRA, or something different entirely? The answer to this question isn’t always cut and dried, and will change depending on what student loan strategy she wants to pursue, whether or not she wants to retire early, or if she has other specific goals in mind that we need to account for.
There are many other factors to consider (I didn’t even touch on insurance, taxes, or estate planning).
The point is, you can begin to see how all these things are interwoven into the fabric of Amy’s full financial picture. But that is what financial planning is all about: it’s simultaneously looking at each piece individually and how it affects all the other pieces as well. When utilized properly, financial planning helps you be as effective with your money as you can be, so that you can go live a great life.
If you are wondering how financial planning can positively impact your life, reach out. I’m just a phone call or email away.
Erik Kroll is a Fee- Only Fiduciary Financial Planner in Milwaukee, Wisconsin. His mission is to help people across their whole financial picture. With a specialization in student loans, he has advised on over $5 million in student debt.
Erik is always on the journey of being a better father, husband, and listener.
