Financial Planning Services
What is Financial Planning?
When we talk about our financial planning services, we like to use an analogy that answers the question, "What is Financial Planning?"
In Warren Buffets 2005 letter to the shareholders of Bershire Hathaway, he stated that he looks for companies that have "widened the moat" around their operations so that little positive changes can be captured and over time become huge successes while unforeseen circumstances that can impact the value of the business can be managed.
This philosophy helps to ensure that the companies in which he invests will be successful over the long term. Similarly, when we look at answer what is financial planning, it is a process to helps individuals like you "widen the moat" around their finances so that they can be successful over the long term."
Consider that you are building a kingdom for your family and yourself to enjoy now and into the future. At the center of your kingdom is the castle where you family lives. What are you using for building materials? What are the tools available to build your castle?
All of the building materials (bricks, mortar, wood, nails and screws) in castle construction work together to literally hold it together. In the same way, your financial products and your decisions about them work together in building your financial castle. The financial materials and tools used in building your financial castle include:
Earned Income Investments Mortgage Investment Property
Pensions 401k Roth IRA College Funding
Social Security Company Benefits Gold Commodities
CDs Insurance IRAs Mutual Funds
Using these tools, a picture of your castle now looks like this:
All of these financial concerns affect one another to increase or decrease the efficiency of your castle construction so care must be taken with each decision. Your choices can strengthen or weaken the castle where you and your family live. You must devise a personal financial strategy that will allow you to build you the biggest and safest castle possible.
But where in your kingdom would you build a castle? You would probably choose solid ground in an area with a clear view outward to watch for threats like the unfriendly neighboring kingdoms or marauding barbarians, not on sand or in a bog. In the same way you need to build your financial castle on a firm foundation that protects not only the castle but also all of the people and property it holds.
The best way to protect your financial castle against known and unknown threats is through the use of insurance. Let an insurance company absorb the costs that various risks present. There are at least four areas of risk to be aware and, if possible, avoid.
The Foundation of your financial castle looks like this:
If you or someone in your family are in an accident or have an illness the cost of medical care can take away the assets it took a lifetime to create. If you haven't the assets to pay for treatment, that medical event can prevent you from reaching your goals the rest of your life. Health Insurance is a must in your castle's foundation.
Life Insurance is a basic protection against a worst case scenario. It can replace the income of the household breadwinner, pay off debts, ensure the kid’s college gets funded, and will obviously reduce financial stress at very stressful time. There are many kinds of life insurance and they work into financial plans for different reasons.
But what if the heart attack or accident doesn't kill you? Instead, the accident impairs you enough that you can no longer work to earn a living. You could live to watch as all your assets dwindled down, your home foreclosed on, and you could became dependent on family, friends, or the government. Protecting your income with Disability Income Insurance is very important and solidifies your castle's foundation. In a similar way Long-Term Care Insurance protects your assets and lifestyle should you require constant, ongoing care.
Property and Casualty Insurance includes things like automobile coverage, homeowner's policies or an umbrella policy. These policies protect against specific perils and in many cases are required by law or a creditor.
Your castle with all your assets rests on the insurance foundation. To further the analogy, this bigger picture of your castle rests on Estate Planning. Estate Planning can be very simple or a complex strategy but either way the goal is to further solidify your long-term goals. This is where you let your wishes known; where you direct your assets to appropriate beneficiaries and if desired maximize your legacy.
Widen the moat around your castle.
There are always external forces that work against a kingdom. Some time ago it could have been a tribe of Barbarians that physically attacked your kingdom by invading and looting your castle; taking anything they wanted. Today those Barbarians that attack your family have many different forms. All of these Barbarians have the potential to damage or destroy your castle, your kingdom, and the dreams you have for your family. Some of today’s Barbarians are:
High investment Fees Inflation Bad Investments
Taxes Deflation Accidents
Injuries Disability Illness
Lawsuits Stagflation Unemployment
Health Care Costs Longevity Premature Death
Your Complete Castle:
Looking at the complete picture is essential to understanding the inner workings and the possibilities of what you can be done to maximize and protect all that you have worked to accomplish.
So how do you protect yourself from those Barbarians and continue to build a large castle that you can enjoy today and in the future? How can you best position your assets (investments) and other financial instruments to work together as efficiently as possible to achieve your short-term and long-term goals? How do you touch the next generation and perhaps create a legacy that will continue to give to your causes well into the future?
All of these variables are taken into consideration when creating a Comprehensive Financial Plan and answering the question "What is Financial Planning."
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