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Part 3: Financial Plan Basics: Financial Planning Myths

myth and reality word cloudThere is a lot of misinformation about financial planning. Therefore, this article exposes some of the myths or hypes of planning. This information may be helpful for people to understand more about financial planning.

Financial Plans Should Not Be:

1: Product Purchase Centered:  Financial planning should never be based on the sale of a particular insurance or investment product. Financial planning should be unbiased and should be concerned only with the needs of the individual.

2: Unbalanced: Financial plans should be balanced.  They should not over-emphasize one area, such as investments, retirement, insurance, taxes or death planning.  Financial Planning should be holistic, addressing all the areas of planning and how they relate to and affect each other.

3: ‘Handled’ for the client: Clients should not turn over all finances to a planner to abdicate all of their decision making.  Financial planning should involve and engage the client.  Clients should not stand on the sideline, but they should participate actively in the process.  Ultimately, individuals are responsible for their decisions.

4: Not integrated: Financial plans can be focused on one particular area, such as cash flow planning and taxes. That is why you may hear accountants talking about financial planning. The same goes for insurance or investment professionals doing planning from an insurance or investment point of view. Comprehensive personal financial planning looks at almost every area of planning. In addition, the various parts, like insurance and estate plans, should not be planned in a vacuum, since almost almost all areas of planning are interconnected. Remember when you were young, and you played either ‘pick-up sticks’ or ‘barrel of monkeys.’ What made those games fun was the challenge to pick the pieces up in a connected way or so that the whole pile of sticks or monkeys weren’t scattered. Financial planning software is integrated, so that when you change some areas, others are affected.

This is the 3rd article in a 5-part series about financial planning: