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  • Writer's pictureDavid H. Kinder, RFC®, ChFC®, CLU®

F.A.Q. #7 - What exactly is Goals-Based financial planning?

Updated: Jan 18, 2023

In an earlier blog post, I talked about "needs-based" financial planning and that it was a product of financial companies putting their own "packages" together on a low-cost, but highly profitable basis for these companies and calling it "financial planning".

Here is that blog post here:

Today, let's talk about "goals-based" financial planning. What IS "goals-based" financial planning? Simply put, it's the notion that "I have $500/month (or I have $250,000 in a lump sum) that I want to put aside every month so I can have a larger lump-sum of money to do x, y, and z with it."

What's the problem with that?

1. Where did you come up with the initial amount from your budget? What if we could double, triple, or even quadruple it… by reprioritizing and repositioning some of your assets and cash flow? Would that help you to achieve your goals faster? Many investment reps may not even bother with that as it may not be seen as a worthwhile use of time OR they may choose to charge you a fee to prepare a plan (that may run you hundreds of dollars itself).

2. In this kind of scenario, you're not getting planning advice. You're going to get investment advice coupled with the guidance of the various tax and other rules incidental to the investment. If this advisor has planning credentials, they're using them to answer your questions instead of asking them. In this scenario… YOU are the planner, and you are hiring an investment advisor or registered representative to help you invest that $500/month for what you're looking to do. It is my opinion that the most skilled planners ask far more questions than are usually asked of them. They also have many financial concepts to share and ask you how you would prefer to go about building your long-term plan.

3. This kind of approach often assumes taking on investment risk. Why? Because, traditionally speaking, if you want to achieve a lump sum in a reasonably short period of time, you'd have to be willing to take on some investment or portfolio risks to get those higher returns. Unfortunately, it is not a guarantee that, should another investment opportunity present itself, your funds may not necessarily be there if there is a large stock market correction or other event. If your money drops 30-40-50% right when you could use it when you need it most… you could be "**** out of luck" and have to wait for the portfolio to rebound.

4. What happens when (if?) you achieve your goal? Are you going to let all that financial discipline stop the compounding interest and just spend it all? What if there was a way that may take a bit longer, but you could truly have LIFETIME compounding interest and earnings WHILE you enjoy your money along the way? There are ways to do it… if you hire a real consultant who can look at your entire situation, instead of just hiring an investment person to choose something for your defined monthly contribution.

I used to be a "needs" based and a "goals" based financial "planner". I helped people as they brought their needs and goals to me and I did a decent enough job. I helped make sure no one did any egregious mistakes as I helped them to make financial decisions about their money. However, I certainly did not know how to help people for their long-term financial and economic planning. I did not know where I could help people to "find the money" to enjoy life today AND for the future with certainty and peace of mind. I did not do enough protection planning using today's life insurance, disability, and other products. I was just focused on mutual funds and other comparable products back then. I simply didn't understand the value of some of these other tools in that context.

Today (and for the past few years), I know better and have learned far better. I've learned a lot in my 15 years in this industry, and I'd like to put that knowledge to work for you, your family, and for your retirement income planning.

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