Imagine you arrive for an appointment with a new financial advisor ready to sit down and pull out your income tax returns, savings book, and 401(k) statements. Instead, a conversation unfolds, and you discuss questions like these:
- What has meaning and purpose for you in life?
- What motivates you?
- What are your core values?
- How can your finances support the vision you have for your life?
Meet your financial life advisor. Today, we are going to talk about financial life planning, and demonstrate the many ways it can enrich your personal and financial experience.
What is financial life planning, and what is a financial life advisor?
Traditionally, people think that financial planning is all about numbers—budgeting, diversification, retirement savings, and so forth, with return on investment, being the most important indicator of financial success.
An advisor recommends certain asset allocations, investment choices, and insurance policies. You may ask questions about individual products. Periodically, the portfolio gets rebalanced.
That’s all good and well, but it leaves some clients—and advisors—dissatisfied. Hence, financial life planning. Financial life planning hones in on the same technical sophistication as a traditional plan but also goes beyond the numbers.
Financial life planning is a holistic approach that first explores your values and priorities, dreams, and hopes for the future as well as current circumstances and challenges. Then, this focus on your interests, and motivations serves as the basis for preparing a financial plan that supports them. It takes simple concepts like saving and investing and gives them a purpose and intention.
Your financial life planner wants to make sure that both your financial and your emotional well-being are in sync, so money becomes a tool to fund your dreams.
How does it enhance a traditional financial plan?
The shift from traditional financial planning to financial life planning began in the early 2000s among growing awareness that individuals typically do not behave rationally when making money decisions.
Instead, emotions play a key role as do unique beliefs and aspirations. As a result, many planners transitioned from product vendors to trusted advisors.
Financial life planners seek to manage your assets as the means to make your hopes and dreams a reality, rather than solely ensuring adequate financial retirement planning and insurance coverage.
This vision takes your finances to the next level because it accounts for the behavior and emotional aspect that is ever-present in your financial life.
What does this look like in practice?
When you meet with a financial life planner, they will likely spend quite a bit of time getting to know you, including your hopes and concerns. Questions might come up like.
- What would you like to accomplish with your money?
- Does the type of industry matter to you in your investment choices?
- What is your definition of a ‘rich’ life?
- What scares you?
- What do you want to avoid yourself and your loved ones?
The call is a discovery that deepens both your and your advisor’s understanding of your habits and attitudes. It serves as the foundation to develop financial recommendations that align with your life and financial goals.
The outcome is a holistic financial life plan that combines qualitative information (your goals and objectives) with quantitative data (your assets and liabilities, college and retirement planning, and more) to support your core values and ethics.
Why work with an advisor who specializes in life planning?
Life is unpredictable, financial markets are volatile and your finances are complex.
Consider how your own life has evolved over a few short or many long years. As your circumstances change, so does your mindset and your investment needs.
Yet a traditional financial plan will most likely only account for changes to your portfolio, not how your mindset alters your approach to investing. Perhaps you want to invest in a more socially-conscious way, having your investments reflect the social impact you try to make in your daily life.
Financial life planning has a clear understanding and application of all three dimensions and therefore, sets you up for more success. This type of planning accounts for new circumstances in your life, and how their emotional and mental impact translates to your finances.
Major crises like the ongoing pandemic and economic downturn magnify the importance of such close involvement. How has COVID-19 affected your goals and priorities? Has your money mindset changed? A financial life planner who knows you well is likely to anticipate the need to fine-tune your financial plan to make sure that it—again—realigns with your hopes and objectives.
This holistic approach ensures not only your financial well-being but also your life satisfaction.
Client Case Study
We have worked with a particular client for many years, a successful high-tech executive. But his dream was to work for a non-profit ocean conservation organization.
A traditional financial planner would have recommended some tweaks to his portfolio and lifestyle to make the career change possible.
But we took it a step further: We also worked with him on creating a different mindset to navigate this life transition from high-powered tech to idealistic conservationist. Thanks to our guidance, when he eventually quit his job to live his passion, he was not only prepared financially but also emotionally and mentally.
Financial life planning is never just about the money—it’s always about how your money relates to your larger goals and aspirations. Ready to see how financial life planning can impact the way you handle money? Set up a time to talk with our team today.