By: Ian M. Maddox CRPS®

At its very basic level, Financial Planning has existed for all human history.  Sure, in ancient times we didn’t have fancy currency, exotic investment vehicles and insurance products, or even a concept of saving for college or retirement.  We did, however, have a need to identify, measure, manage, and trade resources.  We also quickly learned to set resources aside for known and unknown future needs and to avoid risks that might negatively impact our well-being.  Our hunter-gatherer forefathers planned to survive.  Today, solid financial planning can help us to thrive.

I have found that young adults starting career and family, and even some seasoned investors, do not fully grasp the concept of what financial planning is.  According to Investopedia, “a financial plan is a comprehensive evaluation of current and future financial state by using currently known variables to predict future income, asset values and withdrawal plans.” *  A simpler definition would be the process of determining whether and how an individual (or family or business) can meet future goals through the proper management of financial resources.

Breaking down financial planning into subject areas will prove helpful.  Keep in mind that each one of these subjects is important on its own, but a well-executed plan recognizes the interconnectivity and even interdependency of one subject to another.  Financial Planning is a perfect example of the sum being greater than the parts.

  • Cash Flow & Budgeting: What’s coming in, what’s going out, where it’s going now and where we might want it to go in the future.
  • Risk Management: Fancy financial planning jargon for insurance. But don’t take it lightly, appropriate risk management looks at items and fills in gaps that might be created if current or future cash flow were to go away or be reduced.
  • Employment Benefits: Leveraging employer provided benefits such as retirement savings plans, stock options, health insurance, health savings accounts, disability insurance and many others. This subject area really provides building blocks for other planning elements.
  • Investment Planning: Connecting a series of investment vehicles (cash, stocks, bonds, real estate etc.) to an investors current or future financial goals and their psychological ability to take risk.
  • Tax Planning: Financial planning does not incorporate the process of tax preparation but is concerned with the impact of taxes on current or future cash flow, investment returns and transfer of assets.
  • Retirement: For many individuals this is the single most important financial goal.  Ensuring enough accumulation of assets before retirement and stable distribution of assets after retirement.  In-other-words, don’t let your days overrun your dollars.
  • Estate/Legacy: Planning for the transfer of assets from one individual to another individual(s) or entity. Legal professionals are often engaged in this planning area to ensure proper construction of wills, trusts and powers of attorney.

One piece that is missing from this list but is of critical importance is accountability and decision making over a lifetime.  A plan in and of itself will not turn you into a financial wizard. Financial planning defines targets, assigns tasks and provides a framework for decision making, but execution is still necessary and while some elements can be handled “DIY”, many find partnering with a professional invaluable.

* https://www.investopedia.com/terms/f/financial_plan.asp

About Hitchcock Maddox Financial Partners (HMFP):

HMFP is a comprehensive and collaborative financial planning firm headquartered in Trussville, AL, serving clients and their community since 1999.  Collectively, HMFP advisors have provided guidance in the areas of Financial Planning, Investing, Retirement and Insurance for over 35 years. For more information please visit www.hmfp.us or call 205-201-1401.   

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Hitchcock Maddox Financial Partners, a registered investment advisor and separate entity from LPL Financial.