Creating Financial Plans

The Web has loads of free retirement calculators, and you can buy software that purports to chart how things may work out. Even some professional advisors swear by them. Don’t put your trust in these tools.

With all of the independent variables that go into a financial plan, they aren’t likely to play out as we hope.

I recently revisited the subject of modeling software while teaching an economics course. Someone in my class criticized advisors that do not use supposedly advanced software to project hypothetical outcomes for clients. 

A financial advisor’s job is like a detective’s. We probe to see whether your financial assumptions are correct. We want to find the truth beneath the assumptions and document clutter.

Sometimes, our digging uncovers dangerous imbalances in your financial picture. Once we discover these errors, we can help correct them.

Here are two examples of people that we helped by solving misunderstandings before any damage occurred.

What you need before you jump into the financial sea is knowledge. Our recent vacation to Argentina, where I swam with sea lions, reminded me of that – vividly.

Our culture glorifies consumer spending. Part of my job as a financial advisor is to rein in my clients’ enthusiasms that lead to hasty purchases harmful to their long-term financial goals. But that doesn’t mean I am simply a wet blanket.

There are ways to buy stuff that folks want without thwarting their futures. The key is to make plans that accommodate both near-term desires and future security. These are not mutually exclusive.

If you and your significant other aren’t financially compatible, it can put a major strain on your relationship and even lead to a breakup. How do you deal with that?

It’s very difficult for two people to run a household when their attitudes toward money clash. To avoid heartbreaking conflicts, you need to communicate with your partner about money and understand your partner’s behavior.

Why hire a financial advisor? Developing a financial plan is not a job that you can easily do yourself. There are so many choices of investment vehicles, tax strategies and life plans.

It’s hard enough to decide which is right for you, and the game changes every day. Financial planning is a simple process if you have a highly qualified and independent advisor helping you with it.

As a financial advisor, I find it a constant challenge to keep my clients properly informed. This is not an easy job at all.

My advice for people that struggle to save money is to trick yourself into doing it. That’s necessary because we are not wired for good financial behavior.

One of a financial advisor’s toughest jobs is to rescue people nearing retirement who can’t afford to retire. Flexibility and sacrifice are the solution, although neither is easy.

Consider a pair of clients that I began working with eight years ago. Larry was 60 years old, and Lois was 59. (These are not the clients’ real names.) They had a modest income, a very small investment portfolio and like many folks, a fair amount of liabilities including a mortgage, two auto loans and a small credit card balance.

You can save for retirement and chip away at debt. But you neglect to build a cash emergency fund at your peril. While cash doesn’t yield returns, it provides you with a crucial safety net.

Many investors, even very savvy ones, are asset rich and cash poor. To them, compared with paying down a mortgage at 4% or earning 10% in a mutual fund, having cash sit in the bank just isn’t an attractive idea.

As an advisor, I sometimes need to play marriage counselor. Money differences are one of the biggest sources of marital discord. Recently, I resolved a key disagreement that divided a couple. The answer: Let each spouse have his and her own bank account.

The couple – let’s call them John and Jane Bickerson – is nearing retirement, and sat down with me to look at their cash flow needs, possible dates to quit working and the ever-present question, “Do we have enough?”