Financial Planning: Introduction

What is this all about?

It's about planning your financial future to achieve your goals. It is not about beating the market, getting a ten-bagger, being rich beyond your wildest dreams. It is certainly not about "buying and holding" or "timing the market". It is about understanding what you want, what it will take to get there, and how to do it in the most efficient way possible. If you want to jump right into the meat of the matter, then go to the page on asset allocation.

Are you ready for financial planning?

As my good friend Jon pointed out, a lot of people don't follow the three basic steps to financial security:

  1. Always save some of your money (if you always save 10% of your salary then you can retire wealthy)
  2. Make the maximum contribution to your 401k
  3. Don't carry a balance on any credit card, period

If you're not following these three rules, then you might want to start there. If you have been doing these for years and have some money in the bank, then it may be time to do more planning. Read on.

Let me be clear that I am not a certified financial planner. I make no warranty, guarantee, or other claims that this is correct or accurate. What I want to do is share with you the combined discussions that I have had with so many of my friends about financial planning. I can also tell you that I have been following this advice for years.

A few words about financial software

Financial Engines ( This is simply the absolute best investment advisor I have found. I love it. It will cost you $300 per year, but that is nothing compared to what you should get back from it. The advice is priceless. I particularly like that it recommends specific investments to buy/sell. There are a few downsides. First, it does not handle individual bonds that you hold; bond funds are fine. If you have a significant investment in single bonds then I recommend creating a separate account for them within FE. It's a little messy, but works. Second, be sure to set the basis value for each holding in your taxable account. If you don't then FE assumes the basis value is 0 and you still owe taxes on the entire value. That changes your outcome a lot. FE could make this much easier, but they haven't. If this discussion is too much for you, then maybe FE isn't for you. Third, FE does not give advice on exchange traded funds. ETFs are often the most liquid way to invest in a particular asset class. If you own an ETF, then FE assumes you want to keep what you have. You'll have to look at FE advice and decide if you need to sell some of your ETF to implement their plan.

Second is Sungard's Allocation Master program - it is fantastic. Unfortunately it seems to be defunct now. The free demo gave me some great projections. It allowed me to enter my portfolio and my goals. It did spending projections and give me a cash to spend plan from each account I owned. It was very easy to use. I wish it would at least show me the current Morningstar ratings for each fund it knows about. I also want it to watch for style drift and alert me when a fund manager changes.

Third is a qualified recommendation of Quicken's retirement planner. Regular readers will know that I have an entire rant about Quicken on this web site. Quicken let me down big time and to me it appeared to have some very big bugs. Still, it had a very neat retirement planner. It asked all the right questions and gave me a great way to play what-if games.

Fourth is another tool that showed promise when I tried it in 2009, but I couldn't recommend it then, it was just too clunky. It was recommended by Consumer Reports, so I bought it for $200. ESP did projections of your net worth and cash flow for the rest of your life. ESP gave you a spending plan that told you how much money to take out of each account each year. It did a Monte Carlo simulation for you. It's like you get to see the details behind what FE does. ESP does not make recommendations to buy/sell specific funds, so you still need something like FE. When I ran it ESP told me that with my plan I could spend the same amount per year that FE projected - great the two tools agreed! On the downside, ESP was not for the novice. The user interface was confusing to me, even with my degree in Computer Science. The documentation was terrible. It has now been replaced by Maxifi. This is a cloud based solution for $150 a year.

Years ago I ordered Veriplan. An old friend of mine wrote it and he is a very smart guy. It requires Microsoft Excel and runs as a bunch of spreadsheets. Unfortunately my interests went elsewhere and I never really test drove Veriplan (sorry Larry!).

I would enjoy hearing the thoughts of anyone reading this. I'd love to know if something I say is wrong or doesn't make sense. If you have a better way to get some point across, let me know. I'm willing to publish some of your ideas here too.

Step 1: Set a Goal

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