Taking a business-like approach to the financial planning process can help get you where you want to go with money.
Having the right strategy and planning are integral to the success of a business. The CEO works to set the organization’s goals, decide on the markets, products and services to focus on, determine the competitive advantages, and establish systems and processes to create sustainable success.
From there, the CFO determines if those goals are financially viable, where the biggest margins exist, the appropriate corporate structure, and how to track progress.
To say there are a lot of moving parts would be an understatement.
The personal financial planning process also has a lot of moving parts. But it’s not as difficult as people think. In fact, I think there’s a lot of unnecessary complexity that prevents people from doing it. When we perceive something to be really hard, we don’t do it.
My goal is to make the case for a business-like approach to your personal financial planning, and to break down the steps. Over the past 20+ years, I’ve helped countless people get better at money so they can live how they want. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Here’s what we’ll cover:
Let’s get started.
The benefits of a business-like approach
Thinking of yourself as the CFO of your financial life is a powerful thing. You’ll have clarity on your financial situation, have systems for reviewing it, hold consistent meetings to review, and know your most important priorities. It will help you to:
Would you be in a better financial position if you took a more business-like approach? I think the answer is “yes” for everyone.
What is financial planning?
I want to keep this as simple as possible.
Financial planning is determining your financial goals, looking at your current situation, and devising strategies for achieving those goals. It’s best viewed as a process because it will need to be updated as your life changes.
The tangible result of a financial plan is a document which details your goals and the strategies for achieving them.
The purpose and value of financial planning and its fundamental goal is providing peace of mind knowing your affairs are in order.
You can create a financial plan for specific things like getting out of debt, or saving for retirement. You can create a more comprehensive financial plan for your entire life. There’s not a right or wrong way to do it.
It’s wise to think about financial planning as an ongoing process. You’re never going to be “done” with it. As your life changes, your plan will also change.
The financial planning process
Let’s get into what the actual process is.
Where you are
It’s important to have a clear and accurate picture of your current assets, liabilities, and perspective on money. You should gather any current statements, policies and documents. Keeping a spreadsheet will also help you get and stay organized.
Cash flow and budget
Your current income and expenses and your personal budget.
Assets and liabilities
This is a very cut and dried accounting of your current financial situation. What accounts and assets do you have, what is their value, how much debt do you have. You’ll determine your current net worth.
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Risk management
This is referring to your existing insurance policies and legal documents.
Planning tolerance
An understanding of how you like to receive and process information. Do you prefer visuals or spreadsheets? Do you want all the details or a broad overview? This is important if you’re going to be working with professionals; the process will be more effective if you’re clear in your expectations and wants.
Values and beliefs
Your values inform your priorities and where you’ll focus your attention. Your beliefs about money play an integral role in how you interact with it. If you’d like to dig deeper into these, you can access our Values Course at no cost.
Appetite for planning
Are you ready to start this process? It will be time and attention intensive and it’s important that you’re going to be fully engaged. We are, after all, talking about your money and your future.
Where you want to be
Without question, this is the most important part of the financial planning process; your vision for the future. You’ll need to think about what you want for your “future” self, your “future” family, and your “future” life. I put the future in quotations because it’s difficult and abstract to think about ourselves getting older. But it’s happening to all of us.
So, what do you want the future to look like? I encourage you to think about these six key areas:
If you’d like to dig deeper into these, you can access our Goals Course at no cost.
Time horizon is a valuable tool in financial planning
Short-term. When thinking about short-term priorities, think three years and less
Mid-term. When thinking about mid-term priorities, think 3 to 10 years
Long-term. When thinking about long-term priorities, think 10+ years.
Closing the gap
We explored your current situation; you thought about where you’ll be in the future, and now it’s time to close the gap. There are five key areas to address.
Risk tolerance
This is a measure of how comfortable you are with risk. How do you think and feel about market fluctuations? How do you think and feel about investing versus speculating?
It’s important to take into consideration both thinking and feeling because while we may intellectually understand something, we make a lot of our decisions emotionally and we need to be mindful of that. Your risk tolerance will dictate the investments and asset classes you use.
Right coverages
You’ll need to ensure you have the proper types and the proper amounts of insurance, including but not limited to health, life, disability, long-term care and property and casualty.
Right accounts
There are a lot of different accounts to save and invest in. Selecting the proper account based on purpose, time horizon and taxes is imperative.
Right vehicles and asset classes
From stocks to bonds, real estate, cryptoassets, mutual funds, and commodities, there are a lot of vehicles available to save and invest in. Taking your preferences and other important variables into consideration, you’ll choose which to use to reach your goals.
Right amounts
Once you’ve decided on which accounts and vehicles to save and invest in, you’ll determine how much to contribute and for how long. You’ll run projections and make assumptions in order to ensure you’re on track to meet your goals.
Completing your plan
You’ve thought about where you are and where you want to go. You know your numbers and current situation. Now it’s time to get it started.
As the CFO of your life, you’re in charge. But that doesn’t mean you need to do everything. There may be certain aspects you’re interested in (like investing), and others that you have no interest in (like preparing and filing your taxes).
If you find you need additional help or want to outsource, I wanted to share some thoughts on how best to engage with professionals.
Financial coach
A coach can help guide you along with your process. They’ll be an additional set of eyes and a valuable third party to communicate with and help you create your plan.
Financial advisor
Finding a financial advisor who focuses on planning and who is a fiduciary would be my suggestion. It will become their job to manage the financial planning process and ensure any other professionals are doing their jobs, and the job gets completed.
If you choose to engage with a professional, communicate that you value transparency and would like to know all the fees and expenses that go along with their service. Ask them if they believe in a collaborative approach and if they have experience working with other professional advisors and helping people with financial planning.
However you decide to complete your financial plan, I encourage you to be as engaged as possible. Once you’ve completed your initial plan, you’ll need to revisit it at least once a year because our lives change.
Accepting the role and responsibilities as CFO of you is an enormous step. And it’s an essential one. There will never be anyone more interested in your financial success as you are.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
We’ve got three free courses as well: Our Goals Course, Values Course, and our Get Out of Debt course.
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