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The Holy Grail of Financial Planning: The Annual Review

The Holy Grail of Financial Planning: The Annual Review

November 20, 2018

Over the last 20 years, my wife and I have enjoyed spending time together watching movies. Recently, we have come upon a new series that showcases the infamous Holy Grail. As legend has it, the Holy Grail is the cup Christ drank from at the Last Supper. In numerous folklore, it is said that a drink from this cup can heal someone from all ailments, and perhaps even bring them eternal life! While I doubt any of this is actually true, it makes for a good flick.

If we simply look up the definition of the word, grail, we find that it means:

"a thing that is being earnestly pursued or sought after"

After hundreds of meetings with clients over the years, I have come to respect the initial financial plan more than ever. In my heart, I have a tremendous conviction that just about everyone can benefit from working with a financial planner on an initial comprehensive financial plan.

But I have also seen a lot of clients who started out with a tremendous amount of steam in their planning engine, only to fizzle out after six months or a year. The reason for this is that some of them haven't realized that the best financial planning is a continuous process. Just like bathing, you have to do it fairly regularly, or eventually, you start to stink.

I believe to whom much is given, much is required. So, if you have been blessed with tremendous wealth, you may very well need a tremendous amount of financial planning in order to keep, grow, and pass it on. If you are just getting started building your financial home, you still need to have regular financial meetings with your spouse or significant other to reach your financial goals.

The Annual Financial Review

At a minimum, Inspire believes that we all need at least one comprehensive financial planning review per year. We believe this regardless of income or net worth. If you have a net worth upwards of $1 million which may include rental properties and larger investments, you may find it worth your while to increase your reviews to quarterly (or four per year).

Here are six items to check off when you meet with your financial advisor or planner.

  • Review your financial goals
  • Know where you stand (cash flow management)
  • Review your tolerance for risk
  • Review your behavior (behavioral modification) regarding your finances
  • Review your insurance and risk management
  • Review your end-of-life strategy

Review Your Financial Goals

Whether you are saving for retirement or saving money for Christmas presents this year, you need to have a goal. Do you have children? Do they need a college fund? Are you maxing out your 401(k)? If so, what do your projections look like so that you can retire at the time of your choosing?

Know Where You Stand: The Emotional Component

There is a significant psychological component when it comes to our money. Do we hold on to our money too tightly? Do we spend our money on frivolous things? The only way to answer these questions is to conduct a financial review at least once a year. Even a simple one-hour meeting between a couple to discuss cash flow cannot only benefit them financially, but emotionally as well.

Continuously Examine Your Risk Level

Allocating even 10% or 15% of your portfolio from stocks to bonds could possibly save you 5% or more of your portfolio's value during a market downturn. For a $100,000 portfolio that would be a savings of $5,000. For a $500,000 portfolio that would be a savings of $25,000. One of the best ways to preserve wealth, is to avoid precipitous losses.

Behavioral Modification: A Check-Up, from the Neck Up

People are funny with money. Once in a while we all need a check-up, from the neck up. One day we want to save every penny we have to build a comfortable retirement. Three months later we are calling our financial advisor to see if we can take $25,000 out of our account to buy a new boat. A lot of research shows that behavioral coaching is one of the best values in financial planning. Yet another reason for that annual review.

Going too long without a review could result in the need to take significant or drastic measures to get back on track; and tweaks are much easier to implement than a major overhaul.
- Rich Ramassini, PNC Investments

Insurance and Risk Management

Insurance is important. Just ask anybody who has survived the wrath of a hurricane in the Carolinas, Florida, Louisiana, or Texas. Younger couples especially have an enormous responsibility to review their life insurance fairly regularly. Taking care of the risk management portion of your financial plan cannot only benefit you, but your children and theirs.

End-of-life Strategy

While none of us like to discuss the certainty that we will one day leave this world behind, we owe it to our spouse, our children, our extended family, our church, and our community to make sure our ducks are in a row. With the incredibly high chance that we will all one day need some form of long-term care, ask yourself this simple question: "What's my long-term care plan?" Having an end-of-life strategy should not be depressing. It should give you hope and confidence that you have prepared well. And there is peace found when great preparation is made.

In Summary

My wife and I made a pact early this year that we have stuck with for the most part. Our agreement was to have one financial review per month, usually on a Saturday morning. I'll admit, initially I was a little leery about spending a whole hour of my Saturday once a month discussing the details of our cash flow and savings. I like to think that since I'm a financial professional, that sort of mundane and arduous bean counting is beneath my stature.

However, I can tell you from experience that such a perspective is not based on wisdom but on arrogance. And arrogance will get you in trouble!

Eleven months into our new monthly version of "quality time", I'm a changed man. I have realized the two heads are better than one, and that my wife is so cool even financial meetings can be made fun—or at least bearable.

I think the Grail of financial planning is the continuous and wise road, and that it should be travelled at least once per year. While initial financial plans are critical, they fall to the wayside if not supported by a continuous system of checks and balances.

One of my favorite quotes: "What doesn't get measured doesn't get done."

If you haven't had an annual review in the last year, maybe you should give us a call. We are here to help.

Tennessee clients please call (865)604-2846.

North Carolina clients please call (910)448-1450.

About the Author

Jeff Headrick is an independent FEE-ONLY financial planner with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

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