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A financial plan is a snapshot of your current financial situation. It’s a compilation of what information you give your advisor, what information your advisor decides to put in the plan, and how his specific software generates the information you will review together.
Planning can be difficult and time-consuming. It requires you to gather information, learn new concepts, place your trust in third parties, and weigh options you may not feel qualified to consider. But with your financial health at stake, engagement with the planning process is critical. Good advisors will make your planning journey easier and even pleasant.
The foundation of a great plan starts with, “How would I live my life if money was not a concern?”
The major components of planning are: discovery of your current financial situation and concerns, gathering financial and non-financial information and establishing priorities, and creating a strategy and action plan. Your advisors will suggest goals and assist you with managing those goals.
The key cornerstones of planning are:
· Identifying risk.
· Developing a strategy to manage and mitigate that risk.
· Implementing solutions to manage and mitigate that risk.
· Monitoring results and breakdowns and taking actions to correct those breakdowns.
Planning is not about the destination but about the journey. The journey requires a collaborative planning process between you and your trusted advisors. Without a plan, you won’t know what your problems are and how to solve them. Without a meaningful plan, you may work on the wrong projects or move in the wrong direction, losing precious time and resources. Take responsibility for understanding and approving the plan so it becomes your plan and not your advisors’.
The question to ask your team is, “how will this planning process solve my problems?”
Smart planning is about mitigating risk. Smart planning addresses risk in proportion equal to reward. Wealthy doctors tend to expect the best and prepare for the worst. Wealthy doctors tend to make fewer mistakes than less prosperous doctors.
Wealthy doctors tend to understand the difference between immediate and delayed gratification. Why is it that some doctors can make ten million dollars over the course of their professional careers and still not be able to retire comfortably, while other doctors make much less and retire in comfort?
A younger doctor once asked an older doctor, “How do I become a millionaire?” The older doctor said immediately, “That’s easy. Make two million dollars and only lose a million.”
In medicine, physicians use SOAP (Subjective, Objective, Assessment, and Plan) notes to document and communicate information with peers and patients. Use this same process to manage your financial and family life.
(1) Create inspiring goals or objectives.
(2) Formulate specific strategies for achieving them.
(3) Arrange or create the means required.
(4) Implement, direct, and monitor all steps in the proper order.
In our next article, we’ll discuss risk management – when bad things happen to good people.
