The Financial Plan And Planners – Part 2

In this second part, the focus is on the actual purpose of the financial plan.  What does it plan?  How is a successful plan different from a faulty one?  And how would we know the difference?

Again, some of the material in this 3 part post are excerpts from the publication:  Wall Street Journal – Guide To Planning Your Financial Future, by Kenneth M. Morris and Alan M. Siegel, published by Lightbulb Press, 1992.

All text contained in quotes comes from the publication cited above.

The answer to what the plan measures is that it tracks the rise and fall of your net worth over time given the plan’s assumptions and estimates.  “A financial plan begins with a personal balance sheet, a snapshot of your net worth, showing what you have and what you owe at a given time.  Your balance sheet shows your net worth: your assets – the value of what you own or have invested – minus your liabilities – the money you owe.  If your assets out-weigh your liabilities, you are said to have a positive net worth;  if your liabilities are larger, you have a negative net worth.”

As accurate as this description is, it sounds a little bit clinical.  Let’s restate it in a more graphical way.  Use your imagination here.  You vividly experience your personal net worth if you gathered up everything you own, sold it all for what buyers were willing to pay, and paid off as close to everyone as possible to whom you owed money.  The vivid experience is that you would be left standing somewhere with absolutely nothing but either a sum of cash in your hand, or a stack of unpaid bills and lawsuits.  Simple, yes?

So, getting back to the financial plan, note that the above quote states the the plan “…begins with a personal balance sheet…”.  True.  But the balance sheet that is used to start the financial plan is only valid at the current moment.  Then poof,  days later and it is out of date.

Back in part 1 of this post series, our cited material told us that a major part of the financial plan is the recommended actions made by the professional planner.  It seems likely that the recommendations would be more finely tuned if they were based on the lifetime of annual balance sheets produced by out MINT Method and the full suite of PlanButVerify software.  Based not merely on a momentary snapshot, but on the future financial history produced by our MINT Method?

I’m not trying to redefine what a financial plan is, or what the professional planner should do.  But I am suggesting that our MINT Method prepares you to be a better client, and provides a far better information environment to your planner.

Who wins?  Everybody!

(Please continue reading in Part 3 of this post.)