The Difference A Financial Life Planner Makes For You

Posted by: Joseph Kuo | June 14, 2023

I describe what I do as “financial life planning”. Oftentimes, when people hear that they are a bit confused and have questions. Most people are familiar with financial planners or financial advisors. But what is a financial life planner? What does it mean to add the element of life to financial planning?

Financial Life Planning- More Than Just Numbers

If we were to consider personal finance from a purely analytical perspective, financial planning can be boiled down to calculations, simple rules of thumb, and probabilities. Using data we know now, such as income, monthly spend, and retirement fund contributions, a financial planner can apply the calculations and rules of thumb and estimate how things like retirement cash flow or investment balances might look like in the future. We can then compare that with the client’s stated goals. If adjustment is needed, the financial planner can create an actionable plan using the available data with a spending budget, savings plan, and investment strategy that projects to meet the client’s goals.

To be clear, simple financial projections are very useful. They help us establish a baseline with which to compare when we make different decisions. With projections we can more clearly identify the key factors that can impact our lives and the possible magnitude of that impact.

However, looking at your life now, could you have foreseen your current life situation ten years ago? How about five years ago? Who knew COVID was coming or how the world would have reacted? Any financial projections made back then would very likely have been invalidated. 

Also, financial projections can’t always account for changes in behavior, as well as our goals and priorities, as we advance in life. To help illustrate, let’s look at the example of buying a home. 

Financial Life Planning When It Comes To Home Buying

There are many financial guidelines when it comes to buying a house. For example, one well known rule of thumb says that you should not spend more than 28% of your monthly gross income on housing cost, and no more than 36% on housing cost plus any other monthly debt repayments. (Note that in areas with very high housing costs, this rule is not always practical.) 

But a home is not just any expense. Just what numerical value do we assign to having a home  close to work with good schools for our children? What number do we plug into the spreadsheet to represent the value of a healthy living environment for our family?

The Power Of Self-Motivation

In general, if something is important enough, most people are more than willing to adapt their lives and bend the rules of thumb to make it work. If my client has found their ideal family home, they will want to find a way to make the numbers work out, instead of merely knowing whether they can afford the home or not. 

What a financial life planner can bring to this situation is to ask the right questions and help their clients consider all the options (including those that might not be obvious), the ramifications, and the alternatives. When I do financial life planning, I empower my clients to make informed decisions. I enable them to see the potential and specific risks they are taking. When they have the full picture before them, they start seeing opportunities to mitigate the risks of going beyond budget for their dream home.

Clients with important goals that they care about are far more easily motivated to improve their financial picture. Some options my clients have found and considered include:

Adapting Career Plans

Jack and Diane were comfortably settled in mid-level career positions at Fortune 500 corporations when Diane quit her job to become a full time mom. It was great to have one parent be home for the kids, but as the family expanded, they quickly outgrew their first home. They found that they could not afford their ideal home on Jack’s income alone. 

We came up with a few different ideas to make up the income gap. Jack could seek to improve his income by working towards a promotion or moving to another company, or Diane could find a remote work from home job that would let her still be at home for the kids. Or the couple could stay on their present course, but retire a few years later.

Modifying Spending Patterns

Some clients have hobbies or other pastimes that they enjoy greatly. While I don’t advocate clients giving up what they love cold turkey, some adjustment to the level of moderation can help. With the motivation of the greater goal in mind, many of my clients decide on their own to cut back on activities with high discretionary spending. 

Peter, a tremendous car enthusiast, enjoyed driving different cars and leased a new vehicle every year. Kate loved to travel internationally. To make up the money gap towards their family home, they agreed on a team effort. Until they were in a better financial situation, Peter would limit his car swaps to once every four years, and Kate would similarly scale back the travel. 

Scheduling Into The Plan To Solve Income Issues

Changing the timing of major financial milestones can also be an option. After purchasing their family home, even though it was financially prudent for both of them to remain in the workforce, Mike and Ann decided that it was more important personally that one of them stay home for the kids. To mitigate this limit to their income, we worked out that if they downsized to a smaller home when their kids went off to college, they could make it work. At that time, Ann could also have the option of returning to the workforce. 

Believing In My Clients And Being There For Them

It can be easy to just assume that clients cannot change. Therefore, it is much easier for advisors to simply tell clients what they cannot do. However, people do have the capacity to change, especially when they are motivated by something personally important to them. 

As a financial life planner I take the time and attention to help clients confirm what’s really important to them. Seeing their options through the lenses of their personal priorities and values magnifies their internal desire to change. As they move down the path they have chosen, I support them as a thinking partner along the way to help them weather any changes. 

Financial life planning is not easy and it’s not fast. It’s a continuous iterative process of helping my clients clarify their values not just when we first meet, but for as long as they are my client. But doing it this way is much more fruitful for the client and more rewarding for me.