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Financial Planning 201

Published -
December 18, 2023

Our Financial Planning 101 article was about setting good habits around saving and investing. These habits are a critical part of the process, but not the entire formula for financial freedom. The objective of this post is to fill in a few gaps that could derail the best-laid plan.

Financial Planning 101 Summary

  • Forced Budgeting: Nobody likes the thought of creating a budget and therefore very few actually do it. We have found that putting saving and investing on autopilot has a much higher success rate than spending first and saving what is left.
  • Investing: You invest now in order to have sufficient assets for something in the future like college or retirement. Investing in the stock market through total market index funds has proven the best way to realize the inflation-beating returns that create wealth.
  • Compound interest: A mathematical wonder that you must see to believe. Those who embrace it with discipline will grow wealth beyond what they could have imagined.
  • Tax Diversification: We don’t know where tax rates will be when you retire (most likely higher). Therefore, having options on where to draw your income will put you in a better position to avoid overpaying taxes.  
  • Avoiding Consumer Debt: This is the number one destroyer of financial independence. Debt causes terrible stress, has ruined marriages, and led many to financial ruin. It can start small and build like a snowball in an avalanche. Borrowing money for “stuff” isn’t the key to long-term happiness.


The points above are a great starting point but to take things to the next level, you need a plan. This includes goals with timelines, assessments, checklists for risk mitigation, tax planning, and actionable steps to meet goals from where you are.

If you are behind in saving for retirement, you will need greater intention with your saving goals and strategy. You may need a more aggressive savings plan to get you on track. The point here is that if you don’t plan, analyze, set goals, and execute, you won’t make the progress you need to make. Planning is crucial.


Stuff happens. When it does, those who are prepared are in the best position to avoid a major financial setback. Here are some steps you can take to deal with life’s uncertainties:

  • Emergency Fund: This is your first barrier of protection against the unexpected. Three to six months of living expenses is often the default but depending on your situation, you may need or want more.
  • Health Insurance: This should go without mentioning but you never want to go a single minute without this coverage. One accident or health event could wipe out years of savings or worse.  
  • Life Insurance: This is important for families. We’ve written about it here. Be very careful about buying any “permanent” life insurance. Few people need this expensive and high-commission product.
  • Disability Insurance: Because things can happen.
  • Property/Casualty (Home and Auto) Insurance: Don’t go without and don’t ignore your rates and coverage. Rates tend to drift up and you should always make sure you have sufficient coverage. A smart way to lower your bill is to raise your deductible. This is much easier to do when you have an emergency fund.
  • Umbrella Liability Insurance: An inexpensive way to protect against being sued. Not that you couldn’t get sued, but if you do and you lose, this will help pay. Some people are more of a target than others but those with assets are higher on the list and this insurance is very inexpensive.
  • Identity Theft Insurance: Another inexpensive insurance you’ll be very glad you have if you are ever a victim of identity theft. Read more about it here.


Proper tax planning can have a significant impact on lifetime wealth. Tax planning is much more than finding ways to reduce current taxes. Proper planning takes a long-term view that sometimes means paying more today to pay much less later.

Some tax-planning tactics include:

  • Account Diversification by Tax Treatment:  IRAs, Roth IRAs, HSAs, Taxable Investments
  • Asset Location: Designates account types in which certain investments should reside.
  • Tax-Loss Harvesting: Strategically selling underperforming assets can reduce taxes and open other diversification opportunities.
  • Charitable Giving Strategies
  • Qualified charitable distributions (QCDs)
  • Low-cost basis stock/funds donations
  • Donor-advised funds
  • Push forward and/or pull back giving to “bunch” into one tax year
  • Retirement Income/Drawdown Optimization  
  • What order to sell investments in retirement to create an income stream.
  • This is where account diversification by tax treatment is so important.
  • The correct order of withdrawals can help assets last years longer.
  • The decision on when to start taking Social Security is an important part of overall retirement income planning.
  • Roth Conversions
  • Can be a valuable tax planning tool.
  • Not for the faint of heart–the math is not simple when looking at lifetime tax benefits and there are a number of tax cliffs that can take the fun out of this effective strategy.


Estate planning is the process of determining how your assets will be handled after your death. Many people view estate planning as something for wealthy people. The truth is everyone should practice some degree of estate planning. This is particularly true for those in the following situations:

  • Second marriages
  • Minor children
  • Dependents with special needs
  • Family businesses
  • Large estates that could be taxable
  • Your desire for privacy

The tools used in estate planning include:

  • Wills: Everyone should have one.
  • Powers of Attorney:  For health care and finances.
  • Trusts:  If anything on the list above applies to you, a trust may be a good idea.
  • Beneficiary Designations/Transfer on Death/Titling of assets: At a minimum, paying attention to these can go a long way toward smooth transition of assets at death.
  • Letter of Last Instruction: Explained here.


Although many people don’t need a financial advisor, there will come a time when it makes sense. The right advisor will be worth many times what they charge. The wrong advisor will be a costly mistake from which it’s difficult to recover. First and foremost, you want to work with someone who is a full-time fiduciary. We explain this here.

Some things to consider when making this important hire:

  • Qualifications: Approach this like you’re making a hire at work. Look at meaningful designations (most aren’t); years of experience in a fiduciary capacity–in contrast to a sales capacity; and educational accomplishments. Be wary of those listed as “best of” or “top advisor” accolades. Most of these are purchased.
  • Structure of the firm: Most financial services firms are sales organizations with licensed (to sell products) advisors. The debate has long been settled that a “fee-only” (not “fee-based) RIA or Registered Investment Advisor should be the first qualification. Second, make sure that the firm and all of their employees are always acting as a fiduciary. Those firms who are fiduciaries will have no problem putting it in writing. Those who do not always act in your best interests will make excuses. Learn more here. Many firms claim fiduciary status but are “dual-registered,” meaning that they are part-time fiduciaries and part-time salespeople–often selling expensive mutual funds and insurance products. In reviewing the work many of these firms generate, it is obvious that they are in sales mode most of the time. Buyer beware!
  • Investment Philosophy: An “advisor” who pitches loaded mutual funds, annuities, structured products, options, or anything other than a portfolio primarily consisting of exchange traded funds (or in some cases no-load index mutual funds) with broad stock market exposure is most likely a salesman pretending to be an advisor.

The good news is that the most educated and qualified advisors with a solid investment philosophy work for fee-only RIAs.


Comprehensive financial planning is more about taking a level-headed approach to a few timeless principles than finding the next hot stock. The media, salespeople, and emotions are working against the best laid plans, so a thoughtful approach with disciplined execution is, and always will be, the best strategy.

How can we help you?

We’re happy to answer any questions you may have about financial, retirement or tax planning. We also love to talk about investment management and how our process increases the odds of our clients meeting or exceeding their goals.

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