Financial Planning – Your Investment GPS

The following post was originally published on Wealthminder

A recent Wealthminder survey found over 70% of individuals don’t have a formal financial plan.  Most of these people wouldn’t dream of starting a project at work or making a major purchase without having a solid plan of attack.  So, why are they willing to leave their financial future to chance?  In short, no real good reason.  The number one answer was they just hadn’t gotten around to it.

Today, we’re going to talk about why having a financial plan is crucial and why creating one isn’t as difficult as you might fear.  A good financial plan is like your GPS.  It understands where you are , where you want to go and the stops you want to make along the way.  It then guides you successfully from start to finish.  If you get off-track at any point, it helps get you back on-track.

Express Your Goals

Before your GPS can give you directions, you have to tell it where you want to go.  Similarly, a financial plan starts with articulating your unique goals.  When you you want to retire?  What type of lifestyle do you want to live in retirement?  Do you have kids that you plan to send to college?  How about a future wedding for your daughter?  The possibilities are endless.

Beyond simply specifying your goals, it’s also important to establish priorities.  Some goals may be “must haves”, while others, like a vacation home in Key West might be “wishes”.  Knowing what you are trying to accomplish and the relative priorities gives you a framework for making decisions if trade-offs are required.  For example, what is the impact on your retirement if little Jack goes to Stanford instead of Ohio State?  What if you only funded 3 years of school for him instead of 4?  Understanding these answers now gives you time to make adjustments.  Figure this out when Jack is 16 and your options will be limited.

Understand Your Current Location

A GPS also needs to know your current location to give you proper directions.  The financial plan equivalents include your age, income, saving rate, existing assets and willingness to accept risk.  Once you have established where you are at and where you want to be, your investing GPS can go to work.  The software that does this part is often called a Monte Carlo simulator.  It sounds complicated (and it is), but all you really need to understand is that it simulates hundreds to thousands of possible market outcomes, kind of like a GPS trying lots of different routes to find you the best path.  The difference is instead of a specific course to take the simulator returns the likelihood you can meet your goals based on your current situation.

Unlike roads, which don’t change very often, the financial future is far less certain.  However, that doesn’t mean we should just throw our hands in the air.  The outcome of a financial planning tool tells us if what we are doing has a high likelihood of success or not.  This is very valuable information because it gives us the chance to adjust what we are doing while there is still time to make a difference.

Make Adjustments

Most financial planning tools give you the opportunity to interactively make adjustments to what you plan to do and see their impact in real time.  For example, what if you saved an extra thousand dollars per year or put off retirement for a year or two?  Really good tools will even suggest to you the changes that would make your plan likely to succeed.  Knowing you have a workable plan should a) give you peace of mind and b) serve as a baseline to measure progress against.

Monitor Your Progress

As we move through life, our priorities inevitably change.  What we thought we wanted at 25 isn’t necessarily what we discover we want at 40 or 55.   A great financial planning tool is one that evolves with you and not one that generates a massive document sitting on your shelf like a paper weight.

In addition, as events occur, both in your life and in the financial markets, you may get off-course.  The key, though, to getting to your ultimate destination is making sure you know when you are off-track, before you go too far in the wrong direction.  You may also need assistance to get back on-track.  Having a dynamic plan that is integrated closely with your actual investment accounts will enable you to do this.  It can alert you to signs of trouble before you get too far down the “road to nowhere” and tell you what you need to do.

Is Financial Planning Hard to Do?

So, if having a financial plan increases your odds of successfully attaining your financial goals and decreases your level of stress, why don’t more people have one?  I think it’s because people believe it is expensive and hard to do.  Historically, your only option for creating a sound financial plan was to work with an investment advisor.  If you just focused on retirement, there were calculators on the web you could use, but they were fairly limited in their capabilities.  The reality is that an advisor can create a plan for you in a couple of hours or less, and while you will certainly have to give your future some thought and answer some questions, it isn’t terribly difficult.  It will be fairly expensive though.

The good news is Wealthminder will be addressing this problem very soon.  Our company was founded on the premise that individual investors need help achieving their long-term financial goals and existing solutions are either inadequate or too expensive.   One of tools we will be releasing shortly generates an advisor quality plan using a simple intuitive interface.  Like what  TurboTax and TaxCut did for filing your taxes, Wealthminder will do for your financial planning needs.  It will also integrate with your existing investment accounts allowing you to quickly see if you are on-track or not.  And best of all, it will initially be free.

If you’d like to be one of our initial Beta customers, simply sign-up on our pre-launch web site,

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