Financial Planning Is More Than Debt Management
“Obviously you don’t know me.”
- STEP BROTHERS written by Will Ferrell & Adam McKay, directed by Adam McKay
(3.5-mins)
One of the most common, and sometimes only, pieces of financial planning that people have experience with is debt management. Specifically, people come to me proudly claiming that they follow Suze Orman, Dave Ramsey, or another popular personality’s financial advice.
That’s great! But what else? There may not be anything wrong with the advice you’ve been given, but that’s only the tip of the financial iceberg. There is so much more that you’re missing, and what you’re missing might be twice as valuable.
GENERIC IS RARELY PERSONAL
I actually do have a beef with some of these TV/Radio/Podcast/Internet personalities giving financial advice. It can be good advice for the right person. For. The. Right. Person.
Some of their statements are too generic to apply to everyone. Dave doesn’t know your specific situation, so how can he give you advice that’s tailored to you? At the very least, he should be taking your tax situation into account. But he doesn’t know your tax situation! Suze doesn’t know that you could make $500k this year, and $25k next year. Therefore, when they tell you to invest here, or stop paying this and pay that instead, it may not be the best piece of advice for you. It could be. But maybe it’s not.
Many people need help with their budgeting and debt management. In these cases (again, without knowing your personal situation), some of their advice can be spot-on. For some, the debt snowball can work great. This is the strategy of paying highest balance, or highest interest, debt first. After that’s paid off, you take that exact same monthly payment and add it to the next highest debt. You keep doing this until your debts are paid. This may not work for everyone, but it’s a good strategy for the right person. There are too many variables to give general advice and assume it will be good for everyone.
So when people come to me and say they’ve made strides thanks to one of those people, the conversation comes to a halt. They think they’ve been given financial planning from an expert and don’t need much else.
NOW IT BEGINS
Yes you should celebrate, especially if you’ve gotten out of debt. Now the financial planning can start. Paying off debt is not the end. It’s the beginning.
Having a monthly savings goal should be in the mix. I like to have a future goal in mind then work backwards. So if someone needs $100k for a down payment in five years, we can divide 100,000 by 60 months, and know that $1,527 needs to be saved every month, assuming 3.5% interest. This shouldn’t be an arbitrary number.
Your insurance policies need to be reviewed. Making sure you have sufficient coverage on your homeowner’s insurance can make or break a financial plan. If you have children, it doesn’t necessarily mean you need life insurance. You might! But without the proper planning, there’s no way to unequivocally say yes. If you do, how much exactly? Similar to a monthly savings amount, that number shouldn’t be arbitrary.
What kind of legacy do you want to leave behind? You can make decisions after you’re gone that greatly impact friends, family, and charitable organizations. This decision alone can greatly influence the other financial moves you make during your life.
FINAL SCENE
I haven’t even touched investments, retirement, or tax planning. As you can see, although debt management and budgeting are very important, they barely scratch the surface when it comes to financial planning. So please don’t assume that the TV Personalities are the only advice you need to follow. In fact, that advice may not even be for you.
If you’d like more information about Financial Planning, you can schedule a complimentary meeting HERE.
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