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Plans versus Planning

 Financial plans are overrated. Too often they are thick, overly complicated documents that are rarely taken off the shelf. The value of financial planning is in the activities involved in creating a plan. In this episode we discuss those activities so you can keep yourself on track to your goals regardless of whether or not you have a formal financial plan.

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Transcript below:

Speaker 1 (00:00):

Welcome back to 30 Minute Money, the podcast that delivers action item, action-oriented smart money, ideas, and Bitesize pieces. I'm Scott Fitzgerald. We're recording at Roc Vox recording and production, and joining me in studio Steve Wershing from Focused Wealth Advisors. Hey, Scott, how you doing? 

Speaker 2 (00:17):

I'm well. How are you? 

Speaker 1 (00:18):

All right. Well, you are a financial planner, but I've kind of, I've kind of heard you talking a little smack about plans. Yeah. And not to do a plan or something. I, you know, I'm still trying to figure out all of this seems 

Speaker 2 (00:33):

Like a contradiction, doesn't it? 

Speaker 1 (00:34):

Yeah. It seems like, how could a planner say don't do a plan? 

Speaker 2 (00:36):

Yeah. Well, here it is. So of course we do plans, but here's my point. Today, the plan itself is not what you want to focus on. And that's my message today. I, it's, it's an oper. So there was an article that ran recently in one of the big, uh, financial magazines where they talked about, um, top legendary military leaders, you know, give, give their guidance for how to manage through chaos and that kind of stuff. And it reminded me that one of my favorite financial planning quotes comes from Dwight d Eisenhower, that legendary financial advisor. Yes. Um, and one of the things that, of course, he applied in a different scenario, but what, what Eisenhower said was, plans are worthless. Planning is invaluable. Uh, and that's what I wanted to talk about today, because people confuse plans with planning, and it's not the plan that is the valuable part. It's the planning. And that's why I wanted to, to talk about that today, is to, to, you know, if, if you don't have a financial planner, or if you're thinking about one, or even suspicious about getting one, what's what's the point? What's the value of doing that? And it's not the plan. So that's what I wanted to really stress today. 

Speaker 1 (01:44):

And, uh, Eisenhower would not be very happy, uh, if he invested in, uh, the military industrial complex, 

Speaker 2 (01:52):

He'd probably be thrilled because they've made a boatload of money. 

Speaker 1 (01:56):

But didn't he warn against that? He 

Speaker 2 (01:57):

Did . He did. And we should, we should have heated that warning, but since we didn't, there are lots of people who made a lot of money on, on investing money in, uh, military contractors. So, but that's a story for another day. Yes. 

Speaker 2 (02:11):

So, you know, one, one of the things that, um, one of the things that is true, um, is that some people, you know, some advisors, you know, go out there and they try to impress people with, you know, just how valuable their service is and how much work they're doing by generating these big, complicated plans. I used to call this, you know, planning by the pound that, you know, I'm gonna, I'm gonna deliver to you the Encyclopedia Britannica of financial plans, and that's gonna prove to you how valuable this service is. And the, and the, and the problem is, you know, somebody gives you a three ring binder that's two inches thick, and it's full of your financial plan. What are you gonna do with it? 

Speaker 1 (02:47):

Uh, use it as a 

Speaker 2 (02:49):

Paperweight. Exactly. . Right. Put it on the shelf, never look at it again. Use it as a paperweight, uh, doorstop, you know, boat anchor, something like that. But it's, it's, it's not something that you're gonna consistently go back to. So I really wanna stress that, um, that, you know, it's not the plan. That is, that is the point. Now, you know, I, I, in addition to working with clients, I also work with advisors all over the country doing their client advisory boards. That's one of the things I'm known in the financial industry for is, is, is qualit qualitative feedback. I, I help advisors solicit guidance from, uh, from their clients. I've done hundreds of them. And, and, and we ask a lot of those boards, you know, to critique the plan. And I'll tell you about one illustrative experience that I had. And this is, you know, maybe this is not the average experience, but it is pr it, it, what it's illustrative of the point. 

Speaker 2 (03:42):

So we, um, I was doing a board for an advisor who was really proud of the, um, update package that he puts together for clients. They had spent, he and his partner had spent years putting this together. And it was really extensive, and it walked people through every aspect of their plan. And this is, you know, if you had in PowerPoint, it would be like 22 slides  that they would take people through in each of their updates. And so we brought this to the advisory board and we said, okay, here's what you see. Whenever you come in for an update, this is what you see. Let's talk about what in here you find valuable. And what in here really does not add anything to the conversation. We went through the whole thing and we critiqued each different report in there. We went through the whole thing, and there was one sort of, at the end, it was kind of a summary slide, and it, it, it, it sort of summarized a lot of the different aspects of the plant on one page, on, on one piece of paper. And so, just on a whim, I said to the board, what if, what if Michael just gave you this and nothing else? And pretty much the whole board went, yeah, that'd be okay. Wow. Now, yeah. And so, so 

Speaker 1 (04:46):

All the other 23 or 21 other pages were completely useless. 

Speaker 2 (04:50):

Well, not completely useless. And of course the advisor's not gonna do that. And I wouldn't, I wouldn't suggest that he do that. But it made a really good point. And that is that, um, people are not, I don't wanna say not impressed. People are not helped by big, massive text-heavy plans. 

Speaker 1 (05:05):

There is a fine line of, of this is the kind of information that I want to see that this is working for me, or I'm excited about it. And then when you cross that line, your eyes glaze over and it's kind of like, oh, this is a test. This is a, a college course. Right? Something like 

Speaker 2 (05:22):

That. Yeah. Tldr . And, um, and you know, what, what I, what I really wanna stress is that the, the value of the document is essentially zero, right? One of the reasons is because the moment it comes out of the printer, it's obsolete. You know, it's, things change minute to minute mm-hmm. . And as soon as we have it printed and delivered to somebody, it's kind of outta date. The other thing is that, um, financial planning deals entirely with the future. So we don't know what's gonna happen, right? All of this is our best guess, right? About what might happen. And so the document itself, with all of its projections and all of its analyses, you know, that's not really where the value is. The value is all the activities that it took to put that document together. It's asking you, the client, the important questions and sort of getting you to think through all of the different financial issues that you need to deal with. 

Speaker 2 (06:18):

And so, the real question, if you're looking for an advisor, if you're looking to work with an advisor or evaluating, you know, the, the services of different advisors, what you, you, you know, one thing I would encourage you to say is if they say they do comprehensive planning, I would encourage you to ask them, could I see a sample plan? Please? And if they can't show you one, you can, you can move on . Um, but, you know, but, but, so by all means, ask, um, you know, ask to see what a sample plan is. But the more important question is what goes into making this plan? What do we go through so that you can put all this stuff together and make the recommendations? Because going through those exercises, that is where the value is. And, you know, you can, you can take that dart, you can do that yourself. 

Speaker 2 (07:02):

You, you can do a lot of those things yourself. You don't even necessarily need an advisor. But the point is, the, the advisor ideally would be a facilitator. They'd be somebody who asks the good questions to get you to think through the issues that you face. And working through those and figuring out solutions together, that's where the value of planning is. So let's start with, you know, what, what happens in the planning process? The first thing is inventorying what you have, the two, the two most basic documents that come outta the beginning of the financial planning process is a balance sheet and an income statement. Balance sheet is what you own and what you owe. If you subtract the ladder from the former, you get your net worth. And the net worth is what you wanna track over time. So the balance sheet is important that you should be looking at that every time you get together with your advisor. 

Speaker 2 (07:50):

The second one is an income statement. What did you earn? What were the expenses? What was left? And so those are the two basic ones. And it's surprising, you know, most people don't have those things until they start working with an advisor. Cuz I mean, who thinks of that stuff, right? Yeah. So, so that's where you start, especially understanding where the money comes from, which is probably not that hard for most people, but most importantly, where it goes, that's a really important part of the process. And that's one that, you know, your advisor can sort of help, help, um, move you along on it, but ultimately it really needs to be you because you're the one who's paying all those bills and, and you're the one who needs to know where it all goes. So there are a few different ways, uh, we'll, we'll, we'll talk about this. 

Speaker 2 (08:36):

We'll, there's a whole episode we could talk about in regard to this, but keeping track of where the money goes is, is a big part of the value of a plan. Um, the next thing is what you're gonna need, and that comes from where the money goes. So once you know what your expenses are, when we're talking about things like, uh, retirement especially, um, one of the things that you need to know is how much are you gonna need? How much do you need to keep the household put together? So to meet your monthly bills, and then what are you gonna need for all the other things that you want to do? So, you know, we, we break, when we do plans, we break all that out. So basic household expenses that are monthly, that's, that's the baseline, that's where we start. But then everything else that you might spend, we make a separate goal actually. We, we stack the goals on top of each other. So you need to replace your car. How often do you replace it? What do you spend on a car when you do replace it, how often do you want to go on vacation? How much does that cost? And, you know, do you want to get the second home someday, you know, for your retirement? I mean, this is 

Speaker 1 (09:35):

Like a, a a basically a, a personal budget that everybody puts should be putting together, but of 

Speaker 2 (09:40):

Something like that. Yeah. But, but more important, we, what we do is we break the budget into separate pieces. So it used to be when I was new in the business, you know, we would say, what do you need for retirement? And it was one great big monolithic goal, right? Like retirement's one thing, well, that's good as far as it goes, is a good place to start. But the problem is, let's say that, you know, you don't have enough money to hit that, what do you do? Right? Well, right. It's like, where do you turn? That's why we break it into a lot of little pieces. So the monthly household expenses, we can't go below that. That's the base. But then if we do things like replacing cars, replacing the big things in your home, like specifically the furnace and the roof, um, how often do you wanna go on vacation? 

Speaker 2 (10:22):

When we make each of those a separate goal, it gives you the opportunity to make choices. If you ha if, if we break it into a whole bunch of different things and all together we find that there's not quite enough to, to succeed at it, well now you've, now you can make choices. Okay, well if that's not gonna work, what if we went on vacation every other year instead of every year? What if we spent a little bit less on those vacations? Or what if I drove my car an extra year or two? All of those things empower you. They, they, they give you the information that you need to make choices. And you know, it's, um, you don't want to get into a situation where, well, you can't afford retirement, so you're gonna have to cut back on your goals or save more. That's not that helpful. You wanna be in a position where you can make choices, real choices, you know, like the things I was just talking about. That's, that's where the, the, the power, that's another big power of planning is going through that exercise, making those trade offs, thinking about things dispassionately when you're not right up against it. And you've got all kinds of emotions involved. You know, when you can sit and think Cooley about it. Th that's, that's where a lot of the value of planning comes in. 

Speaker 1 (11:29):

And how, typically, how long does it take for you to, to, to put one of these plans together? 

Speaker 2 (11:36):

Our planning process is, uh, five to seven meetings. So, you know, we, and we step through the six steps of the certified financial planner, board of standards financial planning process and address each one in turn. And, you know, so it cash management and risk management and employee benefits and portfolio and taxes, you know, all the way on up to estate planning. And so we, you know, we handle those one at a time. Um, might take a little bit more, we might get through a little bit quicker if, you know, depending, but that, that's basically the planning process. Is fi is that, that five to seven meetings? I'd be on the upper end of that. I think  , you, you would, you would, you would, you would sign up for the extended therapy program? Yes. I'm, I'm pretty sure 15 to 17 meetings, I think. Exactly. Yeah, exactly. 

Speaker 2 (12:22):

Um, now a lot of advisors will say, well, one of the big things we do is we help you quantify your goals. And I'm sorry, I, you know, I don't mean to be critical of my colleagues, but quantifying your goals is not financial planning. It's Excel. I mean, if you've got Excel, you can, you can do that kind of stuff. The financial planning part is helping you make those trade offs is working you through those decisions is, you know, making sure that you've got your risks addressed. You know, you can't necessarily eliminate all risks, but you can mitigate them. And so that's all of that stuff is, is the, is the real process of financial planning. Um, risks is a big part of it, frankly. Risk management is like the second level up on the CFP pyramid of planning. And that includes not just portfolio risks, but it includes risks. 

Speaker 2 (13:08):

Like what if somebody passes away prematurely? What if somebody gets disabled? By the way, if you're under 40 years old, disability is, you know, way bigger a risk than premature death. So that needs to be in there. If you're closer to retirement, the risk of catastrophic healthcare costs, um, you need to at least consider that. And it's getting harder and harder to mitigate those risks. That's why it's important to, to talk through it. I mean, there are, you know, there's not one strategy to take care of it. There are 2, 3, 4 ways that you could approach it. You should really be walking through two or three or four different ways so that at least you're going in with your eyes open. It may be a risk that you can't really mitigate that effectively if the, and that may at least you're going into it with your eyes open, right? 

Speaker 2 (13:50):

When you do that, um, in terms of projecting what you're gonna need in retirement, it used to be a single line that we would project out. Now, state of the art is, um, involves something called Monte Carlo, uh, simulation where they, um, where you take what you have and what you're saving and what you're gonna need, and you project it all out, and you might insert actual returns from the stock market, the bond market inflation per year, those kinds of things. And then what the computer does is it maps all that out and then goes back to the beginning and randomizes all those numbers and reruns it. Because there's a big difference between retiring and having the market go up 20% and have retiring and having the market go down 20%, right? So it ran, it's, uh, puts all those numbers in in a different order. 

Speaker 2 (14:37):

Reruns it, scrambles 'em again, reruns it, it does that a thousand times. Wow. And it gives you sort of this cone of outcomes, this range of outcomes. And what we look for is that at least 80% of those scenarios turn out okay. So if, if, if out of a thousand tries, if as long as 800 of them have a positive number when you pass away, we can probably navigate our way through that. If some, if you're at 80%, then we have a bad year or a couple of bad years, well, we could probably navigate our way through it. If, if the computer runs all those scenarios and 60% work, ugh, I don't know that we can feel good about how well your plan is gonna work out. So, um, so that's Monte Carlo another, another way of, uh, of approaching it that is, that's nice and simplified, that's being picked up by more and more advisors is just showing people, this is specifically for people who are near or in retirement. 

Speaker 2 (15:32):

It just, it shows them where they are and then it shows them an upper or lower guardrail. And it says, as long as that dot, as long as you stay between these guardrails, you're good. So if you want to come to me and say, Hey, can I buy a new car for cash? Well, let's see. If we drop where you are and you're still above the lower guardrail, you're cool if, um, if you wanna systematically spend more, if you wanna buy that timeshare, if you want to go on those vacations, well, we'll just add that in. We'll take a look at where you are, as long as you're above the lower guardrail, we're good. If you hit the lower guardrail, we probably need to cut back for a while until your portfolio can push you back up into that range. But we really like that because it's a, it's a nice, easy to understand way. It, it's, it's, it's an easy comprehendible, uh, graphic that, that can show people exactly where they're, where they are. 

Speaker 1 (17:09):

All right. So you, you mentioned five to seven meetings for creating this plan. How often does someone have to go through that process to have those, those meetings? Yeah. 

Speaker 2 (17:19):

Well, you know, financial planning, like a lot of things, you do a lot of the heavy lifting up front, and then you don't have to go through that whole thing again. But the point is that once you have it, you want to be consistently, you wanna consistently go through the exercises, at least one at a time. So over the, so you don't have to recreate the financial plan all at once like you do at the beginning, but you want to consistently be engaging in those activities where periodically you'll ask each of those questions again, you just don't have to do 'em all at once. So it's an ongoing process, and I think that's what Eisenhower had in mind. 

Speaker 1 (17:52):

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Speaker 2 (18:02):

Well, so, um, if you're not working with a financial advisor who does this, then um, 30 minute action item is create a list of things to track, like your expenses and your net worth, and then schedule a, a quarterly review. Put something on your calendar once every three months to go back and look at those specific things so that you're consistently tracking those things along and asking those questions. 

Speaker 1 (18:24):

All right. Once again, an informative and, uh, , I'm just not, I'm just not doing it. All right, sounds great. You can find the podcast, of course, 30 minute.money and on your podcast platform of choice. Leave a review for us, let us know how we're doing. You can find Steve at focusedwealthadvisors.com and myself at rocvox.com. If you have any recording or uh, podcast needs, reach out to me. Thanks for listening and watching. We'll catch you next time on 30 Minute Money.