Defining the True Purpose of Financial Planning with Flexibility
About the Guest(s):
Amy Irvine is the CEO and a financial planner at Rooted Planning Group. With over 30 years of experience in the financial industry, Amy has dedicated her career to making financial planning accessible and relatable. Her approach is deeply personalized, focusing on the unique goals and values of each client, which she believes are essential to effective financial planning. Amy is committed to guiding her clients through financial literacy and helping them achieve their ideal financial futures.
Episode Summary:
In this episode of the Money Roots podcast, Amy Irvine delves into the essential purpose and process of financial planning. She addresses common questions about why financial planning is worth undertaking and how it can profoundly impact personal finance decisions. Drawing from her extensive experience, Amy emphasizes the individuality of financial planning, asserting that its purpose is rooted in each person's unique goals and desires for their life, free from financial barriers.
Amy outlines the seven-step financial planning process as defined by the CFP Board, highlighting the importance of understanding personal and financial circumstances as a key component. The episode provides a deep dive into each step—gathering information, identifying goals, analyzing current actions, developing recommendations, and continuous monitoring. By doing so, Amy aims to demystify financial planning and encourages flexibility, acknowledging that goals can evolve and adapt over time. This adaptability represents the true purpose of financial planning: to provide a framework that flexes with life changes and helps individuals navigate their financial paths more confidently.
Key Takeaways:
- Financial planning should be personalized to align with individual goals and values, ensuring it addresses what truly matters to the client.
- The seven-step financial planning process serves as a guide to gain clarity on financial decisions and adapt to life changes.
- Financial goals are not static; it's normal for them to evolve, and planners are there to help clients navigate these changes.
- Discussing and analyzing different financial scenarios enables clients to choose optimal paths that resonate with their values, even if the optimal numerical solution is different.
- Continuous monitoring and updating of the financial plan are crucial, as they accommodate life's changes and ensure the plan remains relevant and effective.
Notable Quotes:
- "Understanding the person is the key component to financial planning."
- "The purpose of financial planning is the ability to actually be flexible if things change."
- "Identifying and selecting goals doesn’t mean they’re written in stone."
- "The most optimal recommendation isn't necessarily what you'll want to choose, and that's okay."
- "The pivoting and the shifting, to me, is the true purpose of financial planning."
Resources:
Encouraged by Amy Irvine's expert insights, listeners are invited to explore the full podcast episode to gain a complete understanding of the robust financial planning process. Stay tuned for further episodes of the Money Roots podcast, designed to keep your finances grounded and your future flourishing.
Transcript
Foreign.
Speaker A:This is Money Roots, the podcast where Amy Irvine and her team keep money conversations real, relatable and rooted in your goals.
Speaker A:Let's grow together.
Speaker A:Hello, Money Roots listeners.
Speaker A:Amy Irvine, CEO and financial planner at Rooted Planning Group, here once again on the Money Roots podcast.
Speaker A:Today, I'm going to be covering a topic about defining the purpose of financial planning.
Speaker A:So I've had a few people over the course of my 30 plus year career ask me, why would I want to do financial planning?
Speaker A:What's the purpose of it?
Speaker A:And honestly, when I'm starting to talk to people about an initial engagement, I ask them, why now?
Speaker A:What, what drove you to pick up the phone or to send an email that, you know, financial planning was an important amount of commitment and time, I should say, time and energy that you would want to spend discussing finances.
Speaker A:I know, it's interesting to me over the years that people really beat themselves up about finance, finances in general.
Speaker A:I should have done this, I should have done that.
Speaker A:I shouldn't have done this.
Speaker A:I shouldn't have done that.
Speaker A:The thing is, with, you know, financial planning or anything really in life, we aren't born understanding financial planning.
Speaker A:We are born with some, you know, something in us that tells us to breathe, something in us that tells our heart to pump our brains to think.
Speaker A:But we aren't born to understand, understand financial planning or medicine or, you know, law or accounting or teaching.
Speaker A:It's just, it's something that we're taught.
Speaker A:When I think about the purpose of financial planning or defining the purpose of financial planning, like I said, for each person it is so different.
Speaker A:So I think that when we ask that question or when we're asked that question, I sort of always turn it around and say, well, what does financial planning mean to you?
Speaker A:Well, financial planning is defined in various buckets.
Speaker A:Like if you go out to the CFP board and you look at what are the, the various areas of financial planning, you'll see that, you know, they define financial planning in various ways.
Speaker A:So if you think about the process of financial planning, you know, first we have to gather information.
Speaker A:That's one of the first things that we have to go through.
Speaker A:Well, what's that?
Speaker A:What is even the data gathering process for financial planning?
Speaker A:Right.
Speaker A:So what are, when we're gathering data, what does that even mean?
Speaker A:So, so that's one of the things that I always start with, start talking to people about when, when I first start working with them is saying, well, you know, what's, what's your life?
Speaker A:What do you want your life to look like?
Speaker A:So the question that I always ask people is if money wasn't a barrier, then what would you change in your life?
Speaker A:Right?
Speaker A:Is there anything that you would actually change in your life?
Speaker A:Understanding the person is the key component to financial planning.
Speaker A:So that's the purpose of financial planning from a, from my perspective and is to define what your life, ideal life looks like.
Speaker A:What are your personal and financial circumstances?
Speaker A:What would you like them to look like versus what they are look like, look like today.
Speaker A:And interestingly enough, again, often when I'm working with people, we define their financial planning purpose when we first start working with them and we say, okay, well where are you?
Speaker A:What's point A?
Speaker A:And then we talk about like point B is where you want to go often.
Speaker A:Point B isn't actually the end goal that we end up working with you to define.
Speaker A:It's different versions of point B and it might be very messy, you know, in order to get there.
Speaker A:And so it's, it's really defining what is your understanding of your goals, what is your desire of your goals.
Speaker A:So step one is understanding your personal and financial circumstances.
Speaker A:So again, if you look at the seven step process that the CFP board defines which trying to understand where your point A is, in order to know how to get to point B or some version of point B, we have to understand you more as a person.
Speaker A:So the purpose of financial planning is yes, to get you to point B often, but it's often also the opportunity to have that conversation about is point B what you think you should have or what you actually want to have.
Speaker A:The second step of the financial planning process is identifying and selecting goals.
Speaker A:Goals are a funny little piece of financial planning because what we think of a goal of 30 years from now may not be what the goal is at all.
Speaker A:Goals change.
Speaker A:And I tell this to clients all the time.
Speaker A:Just because your goal was X at one point in time doesn't mean that it's written in stone.
Speaker A:That's why we always say as part of the prop process and purpose is that it's a living breathing document, right?
Speaker A:We're talking about the, the purpose of financial planning is the ability to actually be flexible if things in changes.
Speaker A:We're always planning even if we choose to not do.
Speaker A:And so I would say inaction is is action, right?
Speaker A:That that's a plan.
Speaker A:It just might not be the best plan for you and it also might not have the purpose that you want it to have.
Speaker A:So step two, when we're setting, we're identifying, selecting goals and setting goals for You.
Speaker A:The thing that I always want to remind people is that, yes, there's a purpose to that.
Speaker A:You know, we, we have to have some identifier.
Speaker A:It's really hard to not save if you don't.
Speaker A:It's really hard to sa.
Speaker A:You don't know what you're saving for for a lot of people.
Speaker A:So identifying and selecting goals is an important part.
Speaker A:But I also just want to reiterate that just because you set a goal doesn't mean it's the goal forever.
Speaker A:We've had a number of clients who say, I want to retire and move to Florida.
Speaker A:And then as they get closer to that actual retirement date, they change that idea and say, well, I want to retire and visit Florida, but I actually don't want to live in Florida.
Speaker A:Florida.
Speaker A:That's the purpose of financial planning right there is to be able to shift and restructure the plan to look differently than what it originally did.
Speaker A:Step three of the planning process is to analyze your current course of action and potential course of action.
Speaker A:This is a really key component, and this is where we run many, many, many scenarios.
Speaker A:And that's often this, this is the step that often people hire us for, think they're hiring us for, is that alternative course of action concept.
Speaker A:And so talking through, what are your options?
Speaker A:We've studied this process, we've studied these, these tidbits of information.
Speaker A:Just like you've studied in your various area of work, we've studied in ours.
Speaker A:And we can give you, you know, potential options.
Speaker A:And, and are there changes of direction and course of.
Speaker A:Changes of course of action that need to be made in order to actually help you get towards whatever that goal is?
Speaker A:But we first have to say, oh, well, where are you right now?
Speaker A:And, and what steps are you taking?
Speaker A:And then where could you possibly go?
Speaker A:Step four is getting into developing the financial planning recommendations.
Speaker A:Now, this is, in my opinion, where the analytical side of financial planning really gets into the mix of things.
Speaker A:So I think of me sitting behind my desk at my computer without, you know, without any, any kind of disturbances going on, where I'm crunching the numbers and I'm coming up with observations and, you know, recommendations that I'm going to share with you.
Speaker A:Again, I think that's where a lot of people think, okay, that, that's, that's why I'm hiring a financial plan planner.
Speaker A:It's still not necessarily the purpose of financial planning, but that's where a lot of people come to us and say, this is why I think I'm hiring you.
Speaker A:Step Five is to present those financial planning recommendations.
Speaker A:So this is where we're having a lot of discussion.
Speaker A:This is where I think the real purpose sits, because it's talking through the ideas that you have, the goals that you have, the possible solutions that are there, and there might be multiple solutions.
Speaker A:Here's the really interesting thing.
Speaker A:Sometimes when we're presenting these recommendations to people and we present multiple options for different goals that you have, the most optimal recommendation isn't necessarily what you'll want to choose, and that's okay, especially if your plan is still successful.
Speaker A:It's about what feels good to you from a values perspective.
Speaker A:So the purpose here is to really lay out the options to you and to give you some ideas of the pros and cons and also what fits well with, with your inside values.
Speaker A:That's why in step one, we really dig into what, what are you as a person.
Speaker A:We use something called the wheel of life to dig through that just a little bit.
Speaker A:What's most important to you?
Speaker A:What are you satisfied with?
Speaker A:But any financial planner should be digging into, you know, where your value sits.
Speaker A:So that when we get to this step five, and we're recommending things, we can say the optimal recommendation is X.
Speaker A:But based on your values and what you've told me in previous meetings, you may want to consider why, if your plan is still successful, then this might feel better to you.
Speaker A:A great example of that, I think, is when somebody comes to us and say, you know, debt keeps me up at night.
Speaker A:I just want to be rid of debt.
Speaker A:And the only debt that they might have is a mortgage.
Speaker A:And they really would love to pay that mortgage off if they have a really low interest rate.
Speaker A:And, you know, we look at that and say, you know, if you took that money that you could use to pay the mortgage off and you invested it, that's going to optimize your plan.
Speaker A:Most likely, however, if it's keeping you up at night that you have this mortgage and you have this money just sitting in cash earning less than the mortgage, and your plan is still successful, then that might be the right recommendation for you.
Speaker A:You have to know that that's.
Speaker A:That you're sort of quote, unquote, leaving money on the table.
Speaker A:But if that's what feels good to you and your plan is still successful, that might be the right recommendation for you.
Speaker A:Step six in the financial planning process is actually the implementation.
Speaker A:So was the presentation the recommendations, and then step six is the implementation of the recommendations that we actually made.
Speaker A:So everything that you agreed to in step Five, we now start to implement.
Speaker A:Now, some of that takes many, many, many years.
Speaker A:Some of it is action steps you can take right away.
Speaker A:Right now, as I'm recording, we're in open enrollment period for many of our clients.
Speaker A:And so, you know, they're making decisions based on some of their, some of the recommendations that we made to them either years ago or most recently to implement plan.
Speaker A:And then finally step seven is the monitoring process and the updating.
Speaker A:So it's almost like you start all over again.
Speaker A:So it's a circle.
Speaker A:They actually show this.
Speaker A:If you go out to the CFP website, they actually show this as a circle, as the financial planning process.
Speaker A:Because once you get to the monitoring process and the updating of things, you really have to start almost like I said, all over, what's changed in your life?
Speaker A:People change over time.
Speaker A:So we have to say, what's your personal and financial circumstances?
Speaker A:So we've gone full circle and we have to keep doing this every single year.
Speaker A:There's different things in your life that happen throughout the course of your life that require us to readjust what those recommendations are.
Speaker A:I just had a situation recently where I was making a recommendation for a client to consolidate into their current 401k plan.
Speaker A:And when, just as we were about ready to execute that, the current 4,401k plan came out with a document that said, oh, by the way, we're going to start charging an asset fee or we're going to pass along the asset fee to all of our 401k participants into the plan that we were actually going to be rolling into.
Speaker A:So we took a step back and said, oh, well, now this is going to cost you XYZ dollars to actually do that.
Speaker A:It might be better to roll it over into an IRA.
Speaker A:And you would have a 401k and an IRA in that case.
Speaker A:So things change.
Speaker A:And that means that you have to pivot and shift.
Speaker A:And that right there, the pivoting and the shifting, to me is the true purpose of financial planning.
Speaker A:Because life changes, people change, events cause changes in your life.
Speaker A:You know, people have to have job or choose to have job changes, or sometimes they're forced to have job changes or health events that happen to them.
Speaker A:All of those impact all of those hypothetical situations that we've run.
Speaker A:And the goal timeline can sometimes change when we're looking at those kinds of events happening too.
Speaker A:So you may have had a goal that was 10 years out, and what if that ends up happening sooner because of something in life that's going on So I hope this helps explain what the purpose what we feel is the purpose of financial planning.
Speaker A:Kind of lays it out for folks.
Speaker A:If you have any questions on this, there's a great if you go out to the CFP website, there's a really good document that we'll put in the show.
Speaker A:Notes about the Guide to seven Steps of Financial Planning Process.
Speaker A:It is from the CFP board.
Speaker A:It talks about the steps that you take.
Speaker A:It talks about having an engagement letter.
Speaker A:It kind of gives, I mean really, this is written for CFPs more than, I think people that are receiving the services.
Speaker A:But I think it's a super guide that gives direction of what you should be expecting if you're seeking financial planning.
Speaker A:Thanks everyone.
Speaker A:We hope you've enjoyed the show.
Speaker A:If so, please share this with your friends and neighbors and let them know that you're enjoying this podcast.
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Speaker A:Thanks so much everyone.
Speaker A:Thanks for listening to Money Roots.
Speaker A:Until next time, keep your finances grounded and your future growing.
