Financial Planning Process

Overview of the Financial Planning Process

Before we kick the tires on the ins and outs of each step of the financial planning process, we first need to look at the financial planning process as a whole. 

Because if you begin this work without a good grasp on the 80,000-foot-view of how financial planning works — what steps you’re meant to take (and in what order), how all the puzzle pieces fit together, and so on — you can easily become frustrated by what can sometimes be a cumbersome and complex process.

1. Self-Discipline + Your Relationship with Money

It doesn’t matter what your investment strategy is or how sound your retirement plan looks on paper. If you don’t have discipline in your relationship with money, you will struggle to reach your goals. That’s why our financial planning work together begins with a conversation of honesty, transparency, and (most of all) understanding. We’ll be candid with you every step of the way, but we’re also human just like you; we had to learn how to safeguard ourselves against our own financial temptations. 

2. Share Your Financial Planning Goals

Our purpose here is to help you accomplish your financial goals. Truly, it is that simple. But they are just that — your goals. What do you want to accomplish? Really, we are stopping to ask you that question as the next step of our process. Before we start running our mouths with recommendations or advice you didn’t ask for, we’re going to sit down together, we’re going to listen to your vision of where you want to go, what you want to build, and what you believe is standing in your way.

3. Align Your Goals + Plan with Your Values

Before you set off to hike a mountain, you open up your compass. It guarantees that you’re moving in the right direction toward your intended destination, rather than meandering aimlessly through the woods with your gut instinct alone to guide you. The same holds true for how you marry your financial plan with your values. Your values are used to bring clarity to the financial decisions, from how and where you invest your money, to the types of charities and organizations you support.

4. Documenting Your Financial Starting Line

Next, we audit and document your assets, liabilities, income, and spending. Now, this step may not seem very exciting, but it’s what sets the stage to make your financial goals possible — you can’t chart a course for where you want to go if you aren’t clear on where you’re starting from. 

5. The 4 Steps of Personal Finance

Every financial planning professional or firm should be able to clearly define the process by which they create, execute, and iterate your financial plan. In this guide, we take you inside what our recurring process looks like, which covers the following four core areas of your personal finance picture:

• Cash flow and income planning from any investments or business holdings you may have, as well as passive and earned income activities.

• Risk management and assessment, including (but not limited to) asset protection from litigation and creditors, as well as risk drift and imbalance within your portfolio and investment holdings.

• Estate planning to establish a legal way to pass your wealth and assets to people and organizations of your choosing, which includes making changes as necessary to that plan over time.

• Tax planning, which includes working closely with your CPA to maximize savings opportunities and minimize your liability.

How we prioritize and weigh each of these personal finance areas will depend on the personal financial data we gathered in the previous step against the backdrop of your stated financial goals.

Of course, what follows in this guide is based on the processes we’ve developed based on our team’s collective decades of experience in all aspects of financial planning — from wealth management and investment planning, to retirement saving strategies and business ownership. There are others out there who are also highly qualified but approach financial planning in ways that are quite different from ours.

That’s why we’ve also included a final chapter that discusses how to choose the best financial planning professional or firm for your specific needs. Your financial story is as unique as a fingerprint, so we’re giving you the most important questions and considerations you should look to as a part of that process.

Learn Yourself (+ Discipline) with Financial Planning

One of the most challenging aspects of financial planning can also be the most rewarding. You see, what your financial plan will look like will entirely depend on variables that are unique to you. 

For instance … 

• What season of life you’re in

• How close you are to retirement

• If applicable, your family makeup

• Whether or not you have children

• If you own a business or businesses

• Are you an investor with multiple assets and moving parts?

And that’s only the beginning. But there is one thing virtually all of you reading this right now have in common. 

Most of what you’re trying to achieve through a financial plan can be attained. Your success, however, will depend on your ability to establish some plain ol’ good behaviors. When it comes to finances, 99% of successes or failures are determined by human behavior. 

🔎 Related: Asset vs. wealth management (What’s the difference?)

The single best thing you can do as someone embarking on this journey of financial planning is to learn yourself. Know what makes you tick, when it comes to money. Understand what your strengths are, as well as your weaknesses.

Then, build walls to protect yourself against your biggest threat — you

Here’s a truth about financial success many people don’t talk about. You can be operating at the top of your field and still find yourself living paycheck to paycheck. (We see this across a lot of professions, but it’s very common among doctors whose day-to-day decisions are often life-and-death, understandably leaving room for little else.)

Or, if you’re just starting out in your career, you’re only at the beginning of your income-earning potential and dealing with fewer variables with a lot of “planning runway” ahead of you. It is easier in these early stages to get yourself on track. 

We know how it feels to finally make a “little money” and want to spend it on all of the “stuff” your friends are spending money on, but learn to “delay gratification.” You’ve got a living ahead of you. So, make plans, apply discipline and take risks; you have a lot of years to make up ground if you make any mistakes along the way.

🔎 Related: Active vs. passive vs. discretionary investment strategies

Whatever the case may be, your behavior with money can be your greatest asset or your biggest liability to what your financial future looks like.

So, as you’re starting to think about more concrete goals beyond survival or simply “living the American dream” in the abstract sense, such as buying a vacation home, sending your children to college, and more, you’ll need to be honest with yourself about what those habits are — the good, the bad, and the ugly.

Discipline is the key to your success

Once you understand your habits, your quirks, your idiosyncrasies, and your vices — whether that’s one too many days at the golf course with the fellas or “retail therapy” trips with friends or just spending with no sense of control — your next step is to maintain your habits through discipline. 

Being disciplined with your money often isn’t fun and it certainly isn’t sexy, particularly given how our society encourages overspending and over-indulging. Don’t get us wrong, though. We’re saying this, once again, from a place of experience. 

We’re all financial planning professionals — with one of us even married to a former accountant! So, you might assume based on what we do that we’re immune to the behavioral pitfalls around money that we’re discussing here. That we never feel tempted to break the rules we’ve set for ourselves. 

🔎 Related: Meet the Sound Financial Strategies Group team

Ha! If only that were the case. There are days when we look at our own personal savings and investing accounts as big bullies who keep us from having any fun. There are days when we want to curse the rules we’ve set for ourselves, because we can feel the edges of the sacrifices we’re making today to reap the benefits we want to see in future. 

The reality though, folks, is that none of us are perfect every single day of our lives, when it comes to our finances. But if you’re consistent overall with maintaining your discipline, you’ll be amazed at what you can accomplish.

Set Your Financial Goals

The first step in developing your financial plan is to set clear goals for what it is you wish to accomplish. Of course, as we’ve already discussed, your goals will be specific to you and your circumstances, such as age, marital status, your assets, whether or not you have children, etc. 

🔎 Related: Is the stock market gambling? 

Heck, you may be at a transitional stage of your life, where suddenly your plans have drastically changed. Perhaps you’ve acquired an unexpected inheritance or gotten a divorce. 

Whatever the case may be, before you start exploring your options for retirement savings plans and investment strategies, you need to pause and take stock of what specifically it is that you want to achieve with your financial plan. 

The question that we want to answer is, three years from today, what would you consider success?

Do you want to get serious about your plan for retirement?

Do you want to guarantee the education of your children or grandchildren? Do you want them to pursue a Tier 1 education? Do you want to teach them to work for it?

Do you have a greater purpose you want to pursue, a big community or societal issue you want to solve?

What is the big audacious goal that you want to pursue now?

Why do these questions matter?

For thousands of years, we’ve been taught to build wealth. As a result, often the accumulation of wealth is treated as the ultimate goal we are trying to achieve. 

While we are certainly not arguing to go against our human nature in this case, we encourage you to see that wealth is not the ultimate goal. Instead, wealth is a powerful tool by which you can and should achieve your goals, whatever they may be.

3 questions to guide your goal-setting

Here are the three questions we suggest you consider when setting your goals for your financial plan:

1. What do you want to accomplish in your meeting with us or any other financial advisor?

   Although there are some exceptions, we do encourage you to work with a financial advisor to create a sound financial plan. Now, whether that’s us or someone else, that’s up to you — choosing the right financial advisor is a highly personal decision. That being said, before you sit down with any financial professional, you should have some idea (no matter how vague) of what you want to walk away with from that meeting.

2. What do you want to accomplish financially? What do you wish you were doing more of financially?

   Do you have long-term financial goals like sending your children to a top school or retiring and traveling the world? Do you wish you were investing or saving more? Do you wish you had better contingency plans in place for loved ones, in case of unexpected events?

3. What are your goals? How do you define success?

   Admittedly, this is a big “sky’s the limit” kind of question, and that can potentially feel intimidating. For instance, if “financial freedom” is something you’ve dreamed of, it might scare you because it may seem entirely out of reach. On the other hand, maybe you’ve got plenty of money thanks to your hard work, determination, and success; now you want more time. How do you make that possible? This is your moment to do that, either on your own or with a loved one, depending on your circumstances. 

Your answers to these questions will set the table for everything that is to come in your financial plan. It’s important that these answers, no matter how general at first, come from you and no one else. Yes, a great financial planner can help you with clarifying questions and guidance during a goal-setting conversation, but they will still look to you to be the captain of your own ship.

Additionally, knowing your values and being able to speak to them confidently will empower you to better choose the right financial planning professional to work with you. As our very own Joel Holden recently shared in an article:

“A wildly experienced, credentialed financial advisor may seem like the perfect fit on paper. But your values and ethics may differ in ways that simply won’t work for you and your goals. 

For example, are there certain causes or values you believe in or adhere to when it comes to how you manage, invest, or allocate your money? Before you sit down to have a conversation with a potential financial advisor, this is something you need to think about and define for you.”

Here are the questions we suggest you consider when defining the values that will influence your financial planning, all of which can be found on page 2 of our financial planning template: 

1. Describe your faith, values, principles, and/or purpose in life.

2. Is it important to apply your faith or values to your finances? If so, how?

3. What do you believe about financial generosity?

4. What are the most important financial topics to you? Why those specifically?

5. How do you describe financial freedom and enjoyment?

6. What is your investment philosophy? (Active vs. passive, growth vs preservation, ESG/BRI, etc.)

7. Is there anything that we have not asked that you want to share or discuss with us?

Similar to setting your goals, some of these questions may feel somewhat challenging or daunting at first. Others may feel liberating, as you think about the potential intersection of your values, faith, and finances in ways you didn’t think possible. Whatever the case may be, take time to answer these questions to the best of your ability. There are no right or wrong answers here.

Align Your Financial Plan with Your Values

Aligning your financial plan with your values is like orienting yourself with a compass before setting off on a hike. Before you take one step, you’ve validated that you’re indeed heading in the right direction.

Identifying and documenting your values will bring clarity to the financial decisions you make and help you organize your priorities. It can also prevent potential conflicts around beliefs on spending, saving, the types of companies you invest in, or the charities or organizations you choose to support. 

For instance, one of our long-standing "rules" of investing is to "fit the risk." Granted this is an odd statement, in which we mean a person should fit their investing and financial plans to their values (and faith), goals, and lifestyle. You should like your plan, believe, and be excited about the outcome when it does, which encourages you to stick to the plan when it gets hard.

🔎 Related: How to invest for retirement at age 40 (+ examples)

Additionally, knowing your values and being able to speak to them confidently will empower you to better choose the right financial planning professional to work with you. As our very own Joel Holden recently shared in an article:

“A wildly experienced, credentialed financial advisor may seem like the perfect fit on paper. But your values and ethics may differ in ways that simply won’t work for you and your goals. 

For example, are there certain causes or values you believe in or adhere to when it comes to how you manage, invest, or allocate your money? Before you sit down to have a conversation with a potential financial advisor, this is something you need to think about and define for you.”

Here are the questions we suggest you consider when defining the values that will influence your financial planning, all of which can be found on page 2 of our financial planning template: 

1. Describe your faith, values, principles, and/or purpose in life.
2. Is it important to apply your faith or values to your finances? If so, how?
3. What do you believe about financial generosity?
4. What are the most important financial topics to you? Why those specifically?
5. How do you describe financial freedom and enjoyment?
6. What is your investment philosophy? (Active vs. passive, growth vs preservation, ESG/BRI, etc.)
7. Is there anything that we have not asked that you want to share or discuss with us?

Similar to setting your goals, some of these questions may feel somewhat challenging or daunting at first. Others may feel liberating, as you think about the potential intersection of your values, faith, and finances in ways you didn’t think possible. Whatever the case may be, take time to answer these questions to the best of your ability. There are no right or wrong answers here.

Document Your Financial Starting Line

Now it’s time for us to audit your current financial picture across a number of key categories:

• Your assets, including real estate and property holdings, bank and investment accounts, retirement accounts, and more.

• Your liabilities, including your mortgage, home equity loans, credit card debt, and vehicle loans.

• Your income, including salaries for you and your spouse (if applicable), ownership distributions, any other sources of income, social security, and pensions.

• Your spending, including your total expenses for the month, a list of fixed expenses, and any debt services.

Documenting your current situation, including assets, liabilities, income, and spending, is a key step in financial planning because it tells us where we’re starting from, as well as what some of our first actions may be.

Estate planning and your family

Once you have a clear understanding of your current financial situation, it’s time to talk about matters pertaining to your legacy and your family. For instance, what estate or asset protection plans do you currently have in place? 

This includes wills and trusts, power of attorney, health care directives, life insurance policies, wishes for late-life care, and tax plans. Additionally, we’ll talk about your family — your spouse, your children, your grandchildren, anyone who is being supported financially by you, and so on. 

🔎 Related resources:

• What is the purpose of an estate plan?

• Why is estate planning important?

• How much does estate planning cost?

This may seem unusual to some, as it’s not uncommon to see estate planning and financial planning treated as two separate activities. However, we prefer to think of estate planning as a component of an overall financial plan.

Where does your money go?

Even with the best of intentions, we don’t realize that, often, we do not do the best job of understanding clearly what money we do have or where it goes. When someone does show us, however, we might be appalled. 

For instance, let’s say someone went through our bank account for the past three months, and they were able to show us, line item by line item, the $1,500 we spent on eating out at restaurants and grabbing convenient cafe lunches on the run and in between meetings.

In the moment, those small charges likely didn’t feel like much. Or, even if we knew we might be over-spending, the benefit of convenience or time saved seemed worth it. (Plus, sometimes the only thing that will make Little Bobby happy are chicken minis from Chick-fil-a!)

This isn’t something you should feel shame about. We all have some version of this story in our financial histories, even those of us in the business. Still, this is a spending behavior we need to be honest with ourselves about and change, if we want to meet the goals we defined in the previous chapters of this guide, right? 

We know this may feel like a scary part of the process; it’s not exactly a walk in the park to kick over the financial rocks in our lives. You may be afraid of what you might find or that you won’t know how to solve the financial challenges you discover.  That said, great financial advisors will not judge you. 

🔎 Related: Meet the Sound Financial Strategies Group team

We’ve seen it all, and our goal is to help you find the path forward that works best for you, without any judgment. Heck, we’ll just be glad you’re here, taking control of your financial destiny, and we will be honored to help in whatever way we can.

4 Steps of Personal Finance to Bring Your Plan to Life 

OK, now we’re getting into the fun stuff — well, fun for us! We’re nerds who absolutely love getting into the financial weeds. 

To recap, you’re now in a good and emotionally honest place with yourself about your relationship with money. You’ve also closely evaluated your values, and how they may influence some of the future financial choices you will make as a part of this process. You’ve always audited and documented your current financial state across a number of categories (assets, liabilities, and so on). 

Now, it’s time to create and manage your financial plan.

Every financial planning firm or professional will likely have their own clearly defined approach for the creation and management of your financial plan — or they should, at least. If a financial planner cannot explain their approach to financial plan management in a way that is accessible to you, that is a red flag.

At Sound Financial, we follow a four-step strategy to create and manage your financial plan. The four steps are:

• Cash flow and income planning

• Risk management

• Estate planning

• Tax planning

If you were working with us as your financial planning partner, we’d use the information and data we’ve gathered thus far to guide how deeply we emphasize and prioritize each of these pillars as we create your plan. 

But what do each of these steps of personal finance entail?

Step 1: Cash Flow + Income Planning

In this part of the process, we focus on cash flow from investments and any business holdings you may have — we also include passive and earned income activities in this part of the process. 

Other critical elements of this phase include:

• Income analysis from active and passive sources

• Detailed cash flow analysis of your retirement plan

• Annual expenditure planning (taxes, gifts, large purchases)

• Maximizing investment cash flow (bonds, dividend paying stocks, real estate holdings, private equity, annuities)

• Updated financial statements, including balance sheets and income statements from the previous year

• If requested, personal bookkeeping

• Establishing goals for the year

• Quarterly portfolio analysis and trends report

• Maximize returns and minimize taxes

Step 2: Risk Management

As part of the second pillar, we assess all areas of potential risk, including asset protection from litigation and creditors. We also examine portfolios and investment holdings to avoid risk drift and imbalance. Personal risk of life, disability, and long term care are assessed at this time, as well as personal liability and property insurance. 

Additional risk management activities include:

• Stress test portfolios against adverse market conditions

• Update investing risk tolerance (as deemed necessary)

• Review and update business contracts in concert with outside counsel

• Review all personal and commercial insurance policies for adequate coverage parameters and cost efficiency 

• Review all company benefits (life, health, disability)

• Update business valuations (as deemed necessary)

• Outside investment reporting and due diligence packets

• Employee retention strategies (as deemed necessary)

• Quarterly portfolio analysis and trends report

Step 3: Estate Planning

The purpose of an estate plan is to establish a legal way to pass your wealth and assets to the people you choose. It doesn’t matter what you believe your circumstances to be, you need an estate plan. If you don’t invest the focus, time, and resources to create an estate plan appropriately and thoroughly, the probability of your wishes being followed are virtually nil.

🔎 Related: What is the purpose of an estate plan? (+ examples)

That’s why we consider estate planning as an essential component of a financial plan, rather than something wholly separate. So, in close collaboration with legal professionals, this phase of the financial planning will cover developing a new estate plan (or evaluating and updating an existing one) in alignment with your current goals and wishes. 

Estate planning activities include the review of beneficiaries, trustees, and your executor. We also will review:

• Estate tax analysis

• Charitable giving

• Drafting of wills and trusts (with outside counsel)

• An annual family meeting (if needed)

• Quarterly portfolio analysis and trends report

Step 4: Tax Planning

The final personal finance pillar in our process encompasses tax planning.  We will work with your CPA and our process to review previous tax returns to identify all investment and business holdings, dividends, capital gains and losses, distributions, and passive income. 

Other common tax planning activities at this stage include:

• Retirement plan analysis

• Tax loss selling

• Tax sheltered investments

• 1031/1035 strategies

• Qualified charitable distributions

• Tax-favored investments

• Accelerate/defer income

• Discuss outlook/projections for the coming year’s tax laws and strategy

• Parallel tax analysis with Bloomberg tax to compare CPA projections

• Quarterly portfolio analysis and trends report

• Review progress toward annual goals

• Begin process for establishing goals for the following year

The Implementation of Your Financial Plan

The actual implementation and continued development of your personal financial plan is not one that we can document here, as how we move forward will be based entirely on your unique circumstances and goals. 

Depending on your current situation (finances, life stage, desired outcomes), we may look into areas such as different investing strategies or asset and wealth management. Or, we may find our focus is best placed on planning for your upcoming retirement. 

The key is to find a financial planning professional who helps you feel confident, supported, and empowered with essential knowledge as you go through this deeply personal process. Let’s talk about how you do that.

How to Choose a Financial Planning Professional

The financial planning process can be an exciting one, but it can feel quite overwhelming. You have to consider questions you may have not even thought of before, you will need to examine your relationship with money, and there are lots of details to keep track of. 

Now, for some of you, this may be the precise type of challenge you enjoy. You may love the idea of being the quarterback for your own financial strategy, learning all you can to craft the perfect plan for you and your family. For others of you, that may not sound like something you want to do — and that is where a financial advisor or planner can help you. 

🔎 Related: How to choose a financial advisor (tips + questions to ask)

However, as we discussed earlier in this guide, choosing a financial advisor or planner is a personal decision. In addition to understanding the credentials a particular financial professional possesses, you will need to weigh considerations such as:

• How does a particular financial planner like to communicate?

• Do they have a clearly defined methodology for how they make decisions and recommendations in a financial plan and an investment strategy?

• What are their personal values, and are there any conflicts that may preclude them from acting in accordance with your wishes in terms of how your money is invested, saved, or allocated?

• Do they have credentials or expertise in specific areas of knowledge that are of particular importance to you?

Also, how will you work with their people? Will you only have access to a single professional or more than one expert? Are the professionals you start with those you will continue to grow with over time? If you choose to go with a financial planning firm, the answers to these questions will vary. 

For instance, when you work with Sound Financial, we bring you into our family of passionate financial professionals from the very beginning. Instead of siloing you with a single financial planner, we’re firm believers in a team approach, where everyone you meet is already fluent in who you are, where you want to go, and how we want to help you get there.

Finally, there is one other important question you need to answer in your search for a financial professional. Can you trust them?

As our very own Chris McAlpin said:

“No license or professional designation can tell you definitively whether or not you can trust someone with your money or to operate in a way that stays true to your values. That is a very human decision you need to make on your own.”

Yes, of course, what processes and expertise a financial advisor has is absolutely essential to your success. However, do not discount the intangible, human side of the decision you will need to make here. 

If you have any questions about what you’ve found in this guide, please do not hesitate to set a time to talk with us. Even if all you require at this moment is a sounding board for lingering questions or concerns about the financial planning process or choosing an advisor, consider us humbly at your service.