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What is Financial Planning? (Part 1 of 3)

MONEY TALKS - In modern society, talking about money can be a taboo subject. Many of us avoid discussing money because we were taught by our parents that it is rude to talk about, or plainly because we don’t feel comfortable with our knowledge of taxes or investments. Because of this stigma, many otherwise useful conversations, go by the wayside. While most of us have heard the term “financial planning” before, few of us truly understand the meaning and concepts behind it. In my experience talking with family members, friends, and strangers alike, most people either avoid thinking about financial planning or they have preconceived notions on the financial planning process. Unfortunately, regardless of the accuracy of these notions, they are generally hesitant to change or reexamine their thought process. Understanding and analyzing the psychology of human behavior is a subject for another day, but for the purpose of this article, I created three fictional characters to illustrate some of the barriers I’ve experienced when trying to explain what financial planning truly is.

  • Wandering Willy – When the topic of financial planning becomes the focal point of conversation, Willy stares at me with a blank “deer in headlights” look on his face. It’s as if I had a neuralyzer, like the agents in Men in Black, which magically erased his memory. Rather than ask any follow-up or clarifying questions, Willy would just as soon wander to a different topic. In fact, he usually steers the conversation towards a completely unrelated subject such as sports or the weather. Plainly put, Willy prefers to ignore his problems rather than talk about the potential solutions. Talking about his problems would force Willy to admit that there is an issue, and he may need help resolving it.                                                 
  • Cousin Vinny – No sooner do I finish telling Vinny about my profession and all the practice areas I cover, he shouts aloud, “So you handle investments.” To which I reply, “Yes Vinny, that is one area that I cover; however, financial planning is much more than investment management.” Without missing a beat Vinny responds, “Yeah, but you mainly handle investments.” No matter how much time and effort I spend explaining what I do, Vinny has a preconceived notion that I only handle investments. And since I “handle investments”, Vinny wants some reassurance that his latest venture is going to be a money maker. You see his uncle Joey, niece Diana, buddy Clint, fill in the blank…, - told him to buy stock in XYZ. Despite the fact that I don’t know anything about his personal finances or investment objectives, he wants my opinion on the subject matter.                                                                                                                                                                
  • Eternal Erin – Just mention the word “insurance” or “will” around Erin and she shutters. A harmless conversation on risk management and she automatically assumes I’m trying to push the latest hybrid annuity or long term care solution on her. She is very cynical when it comes to discussing insurance products yet highly optimistic when discussing her health and life expectancy. In fact, discussing life insurance with Erin is often a futile exercise because she, “doesn’t plan on dying anytime soon.” She refuses to make the connection that the financial wellbeing of her family could be affected by the amount of insurance coverage she has. When I bring up the idea of drafting a will around Erin, she stares at me with an incredulous look on her face. Erin believes that wills are for rich, elderly people and wonders why I think she is either.

In reality, financial planning is an intricate and detailed process that cannot be summed up in a sentence or two. Because of the stigma attached with money, the preconceived notions people have, and the complexity of the subject matter it’s no surprise that most of us don’t fully understand what financial planning really is. In my next column we’ll talk about the steps involved in the financial planning process as defined by the Certified Financial Planner Board of Standards so that you can truly understand this complex, yet necessary, process and how it can help you turn your visions into reality.