One of the luckiest blessings in my life is that I am constantly surrounded by thoughtful people who have unique insights on life. I was recently asked to participate in the crafting of a financial plan with a family that is bursting with entrepreneurial spirit. Our team and the family collaborated on collecting and analyzing income sources, budgets, goals, and concerns. In this particular case, the news was very good, the look of gleeful delight on the faces of the family was remarkable. I found it incredible because they had never looked up from the grind of building their family businesses to see that they were on a great path toward dynastic wealth. There was real momentum that could lead this family to a lot of satisfaction and fulfillment. Not only that but there is a high potential for a legacy that may have a real impact on their heirs. These folks needed to really think about the future. They had never considered that, at some point, their hard work would sprout, flower, and bear fruit that needed to be harvested. Not only that, but they had no real plan for how to exit their growing businesses. We were truly delighted to give the family great news, but we had to ask them some very tough but critical questions about their real desires. This engagement caused me to wonder how many people participated in the financial planning process and understand the real power, value, and clarity it can offer. So, in this post, we will look at some of the philosophical and mathematical aspects of financial planning. Then, we will look to the horizon to examine the art of the possible.
What Is Goal Planning? And How Does It Relate To Financial Planning?
In life, we typically pursue goals that are of utmost importance to us. We hope that if we do certain things today, positive things come tomorrow. The challenge with many of the people I have encountered is that they are wonderful at dreaming of a bright tomorrow but seem to never quite lay out a list of steps that can get them there. Why is this? I would posit that many simply lack a way to account for life’s variables reasonably and methodically. From a financial perspective, taxes, inflation, and fickle markets can be hard to account for. From a personal perspective, there are innumerable variables with health, cost of living, income stability, family, and day-to-day life challenges. With only so many hours in the day and a lot of competition for our attention, the financial plan seems to never quite get to the top of the pile for many trying to do this on their own.
So how does one begin the process of approaching such a widely varying task like financial planning in the orderly way suggested above?
- Surround yourself with professionals trained to see your life objectively. Generally, the people who would give that support have great technology to aid them in the process.
- Admit that in the best of times, financial planning feels like shining a good flashlight down a long, dark hallway. We shouldn’t just fumble around in the dark, but if we can light our next few steps, it’s worth the effort.
- Establish a baseline. A data set that assumes that everything is acceptable, but not great or terrible. For example, we keep working and see wages and expenses affected by inflation, but we do not experience a huge windfall or major catastrophe. We gather data about income, expenses, social security, and so on. Once the “normal” scenario is set, we can stop and examine the results. From there we can start to imagine wonderful things and prepare for disasters.
Now That We Have Good Data, What’s Next?
This is really when the art of the possible begins to unfurl. Most adults can use a spreadsheet, but even experts sometimes falter when dealing with the moving targets mentioned above. This is where technology really shines. There are many tools available for this type of exercise. The key factor is making sure that what you see as an ending marker is tax, inflation, market, and legislation adjusted so that you have some idea that what you are seeing is accurate.
Now we need to get creative. We have to objectively look at the outcome. In the case of the family mentioned earlier, the results were the best kind of surprise to them. They had no idea that their hard work and determination would yield the results they were seeing. They had no idea what was possible, so they also had no way of planning for it. At first glance, it’s easy to think that having a big number at the bottom of the last page of the reports is a good thing and we can just stop there. We suggest challenging yourself and your family by asking several soul-searching questions. Only by looking inward can we embrace the art of the possible.
Here are a few examples of questions and sub-questions to help clarify and crystallize your goals:
- Is the outcome I am seeing a good one?
a. What positive qualities contribute to my plan
b. Could my plan be improved?
c. What risks could prevent us from reaching these goals?
i. How have we prepared to address those risks?
- How should this result change the way we think about our money?
- What effect does this report have on the way we think about timing retirement?
a. What risks could prevent us from reaching these goals?
i. If we do, what are our biggest priorities in using that extra time?
b. Should we keep working, but do so with less stress?
c. Is there another pursuit or hobby job we might do that pays less but we enjoy more?
- How do we see our inheritance plan given these results?
a. Should we begin giving to our family earlier so that we can see the impact on our families?
b. Does our charitable strategy need work given these results?
i. Should we include the rising generations of our family in the giving we do?
- What impact does this new data have on our current legal documents?
a. Do we need to review them with our legal counsel?
- What lessons do we want to impart to our family as we consider the legacy that we may leave behind?
Comparing the Baseline to Other Scenarios
Once the baseline is complete, and you have started to contemplate many of the questions above, there will naturally be other questions about deviation from the norm. Again, this is where technology can really help us. It is a rare occasion when life allows things to go exactly as planned, so asking “what if” questions is critical in this phase. All families express concern over things that are relevant to them. For example, some families exhibit extreme longevity, so outliving their savings can be a risk. In other families, heredity can bring physical or mental infirmities that shorten life. The care required in such cases can put the nest egg in jeopardy. Many families like the one we have mentioned throughout this post have a strong financial commitment to seeing their children receive an excellent education. The point is that everyone will feel risks differently and each family will need to create strategies to address what they feel are the most significant risks to them.
One of CWA’s great capacities is facilitating the connections required to address these items. For example, the family mentioned above may need to consider life insurance to protect a surviving spouse’s ability to pay for the education they both want for their children. A family with incapacity concerns may need to consider entity ownership of their assets to mitigate institutional care costs. A family who wants to sponsor a large gathering for the extended family may want to consider long rentals of vacation property instead of purchasing a second parcel for this purpose. Each is a different scenario with different considerations. The true goal in scenario planning is to ensure that diligent work is done to name your family’s biggest concerns and goals. Once named, dominion can be earned over them, and plans can be made to mitigate and address concerns while pushing hard toward goals.
Looking to the horizon and at the art of the possible
“The Art of The Possible” was a term I heard first from a colleague here at CWA. To me, it implies taking what is a very arithmetic, rich, and dry process like financial planning and breathing color and life into it. Helping our families build plans to address worries releases them from the stress of carrying those concerns around every day. It frees them up to consider happier outcomes. What can we do with our hard-earned wealth? What should we do to ensure our hard work permeates our family for generations to come? How do we empower our heirs and lengthen their reach versus shortening their reach by spoiling them too much? Have we lived our dreams fully? Financial planning in its noblest form should be a means to provide your family with the data needed to be able to formulate and address deep questions about now, later, and the hereafter. If your family has not taken part in this exercise, please consider doing so. I have rarely seen anyone walk away from the table feeling like it was a poor use of their time. Most of the families we work with feel validated, and excited about what their futures may hold. There is a sense of exhilaration to be garnered from taking hold of your destiny and impacting it with solid planning and teamwork. At CWA our motto is “Protect. Enhance. Enjoy.” This simple phrase embodies so much of the goodness that can come with thorough team-based financial planning. As always, if this article sparked curiosity or concern, please do not hesitate to reach out to us and schedule a conversation.