So You Think You Can Plan?

So You Think You Can Plan?


I have a brother who works in nuclear engineering. Sometimes, I try to ask him about a project he's working on at his job. After he starts, it takes me all of about 10 seconds before I tell him that I don't really get what he's talking about!

And we laugh - he gets it. I don't speak the language of calculus and physics and nuclear stuff. And that's fine; he didn't go into that field because he wanted a job where people understand and appreciate what he does at a detailed level (though it's always nice when people do). He does it because he likes it and is good at it.

And that's the same for me and my career choice (and it's probably the same for you). I studied financial planning in school, passed the grueling 6-hour Certified Financial Planner™ exam, and am on track to becoming one of the 4-5% of CFP®'s under age 30 because helping my peers with their money is something I want to do competently, ethically, and honestly.

But somewhere in all that rigorous study, I think I lost touch with the fact that just because money and personal finance are universally relevant, and many people like to learn about it, doesn't mean that people know what "financial planning" really is. And as a result, people might not exactly "get" what I do - or how to really do financial planning for themselves.


Since I opened my financial planning practice a few months ago, I'm surprised at how many people confuse basic financial literacy with financial planning.

Financial education and financial planning are not synonymous. Yes, it is truly an eye-opening experience the first time you see a compound growth calculation in investing. You probably vividly remember how much money you realized you could save when you set up a debt snowball payoff schedule on your credit cards for the first time. It sickened you when you saw how much interest you pay over 30 years on a mortgage or when you realized how much you pay in taxes on your first paycheck at your first full-time job.

Learning these basic concepts is extremely important. No doubt, they will empower you to make smarter decisions than you were before.

The next step is figuring out how to apply these things.


After learning some basic principles about money, a lot of people are awakened to what were, previously, to them, "secrets of financial success" and turn to self-help books and "DIY" media for some basic guidelines about how to apply these ideas.

I often have people tell me they are handling their finances just fine because they read a personal finance book by ____________ (insert the latest famous author or media personality fad here) and are following everything in it.

Hmm. Riiiight.

Or they say that the only financial advice they need is to "live within your means, get out of debt, make extra payments on your mortgage, and save 10% in your 401(k) or Roth IRA and you will have enough for retirement."


That's a lot like saying that you have a competent travel plan when you say "if I start from Los Angeles and drive in a North-East-ish direction at about 65 mph, I will eventually end up in New York." That's not really a travel plan. It's "guessing in a general direction."

What car are you going to drive? Is it in good condition and ready for a long trip? What highways are you going to take? Will you be driving through the plains during tornado season? How about other weather forecasts? Where will you be lodging along the way? Will you hit toll-roads? And wait...why are you going to New York in the first place?

While driving North-East-ish from Los Angeles at 65 mph will definitely get you closer to New York than you were before, there is no way anyone would think that you would have a good chance of reaching your destination without further planning. You'd make some huge mistakes along the way and have to make some real course corrections. You wouldn't make it to New York in an efficient manner, time-wise or money-wise.

And yet, this is how most people treat their financial planning. They're making decisions "in a general direction". They read up a little on some things, follow rules-of-thumb, and then plan on making course corrections along the way, hoping that they'll have enough for retirement.

Eventually, they might get where they were planning to go - after a lot of lost opportunities and mistakes - or they might not make it there at all.

Sadly, this is what most people are doing. There's not a lot of surety when you're just going in a general direction.

If you think financial planning is simply following a few good rules of thumb, you're missing something. Because rules of thumb, by definition, are what you do when you don't know what is the best thing for you! I think we forget that sometimes. A real financial plan is intentional about what is best for you, because...


Books and other forms of mass media can never personalize advice to you. An author, radio show host, or web article has to speak in generalities. They may dish out general recommendations, but do you know how to adjust their advice to your own situation? Or do you know when a rule of thumb doesn't apply to you?

Here are a few really simple examples of "general advice" that are over-used:

  • "Roth IRAs are always the best choice." What if you're eligible for AGI-based tax credits? You could essentially get a 20% return on every dollar of pre-tax contributions instead to a 401(k) that you make due to Earned Income Credits. I discussed some of this in my past article, Why Roth IRAs Are Overhyped.
  • "Contributing 10% to retirement is enough." I worry for people who have been blindly following this advice for a long time. There are so many variables that could throw this out of whack! It completely depends on what you're invested in, how long are you're going to live, when you want to retire, how much taxes you're going to pay in retirement, what kind of lifestyle you want to have....the list is endless.
  • "Save 20% for a down payment" and "It's always better to own a home than rent." Due to the "20% down payment" rule, I've seen people take way too long to buy a home. With the "own > rent" mentality, I've seen people jump into home ownership much earlier than they should. Length of period held, home appreciation, tax bracket, local prices, career path, and family plans all play into the decision to buy a home to the point that there can be no good general recommendation on this.

Thus, real financial planning is customized. It's personalized. That means that with every bit of information you hear, you should be filtering the information to decide whether it applies to you, or to what degree.

Customized financial decisions require a higher level of knowledge, and will always be more efficient and balanced than shortcut guesses, because...


My second point about financial planning is that knowing a few separate principles is different from being able to synthesize it into a set of optimized financial decisions.

No financial decision is made in a vacuum. It affects all other areas of your financial life. Yet, without a proper knowledge of many areas of personal finance, you can make a decision that appears to be the "right" one but is a costly decision when viewed in the light of another area of your life.

For example, I spoke to a couple who wanted to know if Traditional IRA contributions or Roth IRA contributions were best for them. All of their own research had led them to the conclusion that Roth IRA contributions made the most sense. 

However, because I knew their situation comprehensively, I knew that the husband had a fair amount of student loans. He was planning on using Public Service Loan Forgiveness to have the rest of his student loan balance forgiven after only seven more years, since he was in an Income-Based repayment plan that gave him a lower monthly payment. I pointed out that since their future student loan payments were going to be based on their Adjusted Gross Income, that reducing their AGI through pre-tax contributions to a Traditional IRA would not only save them taxes each year, but reduce the amount of money they were obligated to pay each month on student loans!

When we calculated how much more money they'd get in tax refunds and how much less money they'd pay over the next seven years on student loans, it came to a savings of over $1,000 per year!

But to come to that conclusion, it took a thorough understanding of three different financial facets: retirement, taxes, and student loans. I had to know how retirement contributions affect income taxes and then how income taxes affect student loan repayment calculations. Those things all intertwined and affected each other!

This is why good financial planning necessitates a solid understanding of several fields of knowledge: cash-flow, debt, credit, behavioral psychology, insurance, taxes, business entities, real estate, investing, the stock markets, economic cycles, retirement planning, estate planning, and more.

All these areas of your finances affect each other. Hopefully you can see how inefficient financial decisions can be made inadvertently when not analyzed comprehensively.


Despite most people thinking financial planning is all about numbers and analytical strategies, that's only the secondary part of it.

Financial planning exists because of things more important than money. Money is simply a tool to live the life you love.

Most of the research in my profession tells me NOT to tell people that I will help them clarify their goals as part of giving financial advice. They tell me that if I use that language in my business rhetoric, people will feel like that's "too heavy" and not want to talk about it.

I don't care. It's too important.

Guess what? Very few of us could explain, on the spot, how we want our lives to go. We have general idea of our trajectory and how things will "probably" go; we may even have a few specific bucket list items that sort of float through our heads every once in a while in a "wouldn't that be nice?" sort of way.

Who really gets around to being that specific and proactive about setting the course of their life? It usually doesn't happen until you're forced to write it down or describe it to someone.

I'm not a life coach, but part of my process in becoming someone's financial planner is to actually engage them in this discussion. The reality is, I can't create an awesome, optimized financial plan for every dollar of your life unless I know what you want to do. The quality of my advice is closely correlated with the clarity of your goals.

And that's why it's truly inspiring to sit down with couples to get this kind of clarity, and have one of them look at the other and say, "I never knew it was so important to you to pay for all of our kids to go to college. I always thought we'd try to help a little bit but mostly leave it up to them to figure it out."

Or have someone say to me, "I've never really said out loud that I thought it would be cool to live in a foreign country for a year or two. But it's something I would really like to do."

And then I get to say, "Why not?? Why not make a financial plan that sets you up for these things?!"

This is why my home page banner image isn't some picture of a guy in an expensive business suit sitting at a shiny oak desk across from a perfect-looking couple with the words "YOU NEED FINANCIAL ADVICE" in your face.

Instead, I have this... of the things in life that matter most, and of the beautiful experiences life has to offer (I'd highly recommend going skydiving).

How can you stretch your wealth to get as much out of life as possible? To me, that's what financial planning is all about. Not just settling for "getting by."

What do you really want in life? How much money will you need for your desired lifestyle now and in retirement? How can you protect the wealth you have built so far?

Getting clarity on these types of questions is what financial planning is really all about.


Is your view of financial planning different from what it was 10 minutes ago? 

If anything, I hope you're inspired to get more serious about how you plan your finances. You need to engage in financial planning, and you basically have two choices with how you're going to do it: 1) on your own or 2) hiring a professional. 

The cost of doing it by yourself is 1) the risk of the things you don't know leading to irrecoverable mistakes, 2) the time it takes to do your own research, 3) the stress it adds to your life.

The cost in hiring a professional - as long as he or she is competent, ethical, and honest - is the fee you pay.

I know that is a difficult decision, and you need to do your own research. To boil it down to one decision, though, all you need to do is figure out how much each one costs, and then judge which one will bring more value above and beyond the cost.

The research is clear about how the average person tends to do on their own, and the extra wealth that comes through good advice from a real financial planner (you have to know the differences).

Just like you'd consider the potential risks, time, and stress it would cost you to do your own car repairs vs. going to a mechanic, think carefully about how you approach your financial planning. And be sure to remember the three C's that your financial plan has to have: Customization, Comprehensiveness, and Clarity.

Because if you don't, who knows if you'll really make it from LA to New York?

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