Financial planning, conceptually, is a very needful service. It is the idea of setting goals and working out the financial resources needed to fulfill those goals during one’s lifetime. I think you would agree that this type of efficiency is wanted by most people, yet we seem to have a disconnect between our goals and the effectiveness of the planning (or lack thereof) we are utilizing to achieve them.
The reason is quite simple: there has never been a financial planning technology before Econologics that was based on optimal results in the overall financial condition of a household codified into an empirical science. This lack of scientific validity gave modern “financial planning” a degraded reputation of being a consultative sales process for insurance and investment products rather than a consistent practice of improving financial conditions for the clients.
What is an Optimum Financial Plan? In order to correctly define an Optimum Financial Plan we must first differentiate a financial proposal from a financial plan. A financial proposal is simply this: a presentation of a case, including product information, financial projections, charts and graphs, etc. in an effort to entice you into purchasing said product or service as a solution to a stated financial problem. A financial plan, however, starts with a result and works out a sequence of steps to obtain that result. A plan must contain proposals as part of the plan implementation, as it is needful to use financial products and services to facilitate the accomplishment of a stated financial goal. Unfortunately, both the public and financial services professionals confuse the two concepts and what are marketed and delivered as financial plans are actually financial proposals, leading to the lack of consistent results in household financial condition.
Now that we have the difference between a financial plan and a proposal, we must now further differentiate between and Effective Financial Plan and an Optimum Financial Plan.
First, an Effective Financial Plan is a process, or series of processes, that when implemented will improve one’s financial condition in some way. Period. The dictionary defines effective as “having an intended or expected effect.” There are lots of effective financial plans out there that create one or more of the following improvements: reduced debt, improved investment performance, lowered investment or insurance costs, tax savings, completed legal work, trust in the advice provider, accumulation of assets, reduced risk, etc. Here we are not concerned with the degree of improvement, just that there is improvement.
By contrast we have the Optimum Financial Plan. Optimum, by definition, is “the best result obtainable under specific conditions.” This would be manifested in a financial plan, as implemented, that is effective to the highest possible degree for all of the areas of one’s financial experience. In order for a plan to be considered optimum, it must provide for the attainment of the ideal financial condition from a practical perspective. The ideal financial condition breaks down into 9 separate and distinct areas of your financial life:
- A written, comprehensive financial plan
- Knowledge of basic fundamentals and their application
- A viable business with a plan to transition maximum value to a successor
- Provision for abundant income in the future
- Being debt-free with excellent credit
- Having a complete and current estate plan
- Mitigation of income taxes on earnings and wealth accumulation
- Virtually all assets protected from loss
- Stable and suitable investments to fund life goals
In each one of these elements, there is, in fact, an ideal condition that can be defined and measured—a “perfect” manifestation of the purposes of that financial area. In other words, there is a condition of operation in investment management, for example, that most aligns with natural laws within the restrictions of modern day financial markets. In truth, this would be the only investment experience needed to achieve essentially all of the end results of why one would invest in the first place. However, since every investment provider competes to be the recipient of your investment dollars, the investor becomes very confused by all of the proposals as to why their investment strategy is the best (and we ALL want the best). Unfortunately, the vast majority of investment methods violate basics and natural laws, so the end result to the investor may be Effective (getting a positive result), but it is certainly not Optimum (getting the best possible result within available resources).
The Optimum Financial Plan, then, would seek to obtain the result most in alignment with the natural laws of the subject within the economic and financial framework of the society. That would mean that there is an ideal tax plan, estate plan, asset protection plan, and so on across all 9 elements (which include every financial transaction you will make in a lifetime).
I’m always told by prospective clients, “I already have a financial plan, and I’m happy with that.” It obviously must be Effective because they are getting some positive result, even if it is just the trust level they have in their current advisor. By contrast, any lowered financial condition or bad result would be defined as ineffective, at least in producing positive results. This, unfortunately destroys financial prosperity because the current Effective Financial Plan is only compared to a current condition and not an ideal condition. This creates the delusion that just because we improved the condition from what was or wasn’t working previously, we settle for mediocrity (which is incredibly expensive) because we do not ask how it could be as close to perfect as possible.
The reason lies in the fact that clients of financial planning services and virtually all practitioners do not know what an Optimum Financial Plan looks like so they can compare their current condition to it. The solution is to, first of all, be trained on the theory and characteristics of the Optimum Financial Plan, which is covered in the Private Practice Millionaire Academy, then secondly, implement the policies and procedures in your household that manifest a financial condition that approaches the defined ideal.
Learn the way, then follow it. This fundamental truth has been true in all times and places and is certainly true in your financial experience for this lifetime.