The following is adapted from Inheriting Chaos with Compassion.
Many people resist seeing a financial advisor because they feel that every time they walk in, they’ll be told what they’re not doing right. It’s like discovering a cavity each time you visit the dentist. No one wants a lecture on flossing properly with every visit.
A good financial advisor will help you get a clearer picture of your financial future, which starts with figuring out where you are and what you can spend right now.
Many people don’t have a clear picture of how much money they spend in a year, so an advisor’s first step is to look at spending habits and put numbers around them.
For some people, tracking every dollar they spend is like asking them to jump off a cliff. In the case of one client, I worked with her for two years to get her financial plan done, but she hemmed and hawed over tracking her finances.
Finally, I asked her to figure out her income, subtract how much she’d saved, and we could figure out what she’d spent. She came up with a number that surprised her.
We were looking forward to her future: with a husband twenty years her senior, she was heading toward a transition. She needed to plan for losing his Social Security benefit upon his death and how that would shift her spending.
Adjusting Your Lifestyle After a Loss
Sometimes in this deeper look at finances, you might discover that it’s necessary to make adjustments to your lifestyle. Around the time my husband Eric died, a new client came to see me whose husband had just died. He managed all the money and may have even given her an overly optimistic view of their finances. She would ask her husband if they were financially secure, he would say yes, and she accepted that.
After his death, she had been impulsive in her shopping. If you asked her what she’d spent money on, she wouldn’t be able to say. When her husband was alive, they had a combined habit of spending that wasn’t sustainable in the long run. This client wasn’t able to see her situation until we started pulling her financial pieces together.
Just because someone doesn’t know their financial situation doesn’t mean it’s a bad one, but that knowledge creates a crucial context for financial decisions. Knowing your assets and expenses is pivotal for understanding what strategies support your lifestyle.
In my own situation, losing my husband Eric came not only with a huge emotional loss but with a loss of income as well. We had been in the middle of renovating our home, and our financial plans had been built around both of our incomes.
With this financial loss, certain elements of settling his affairs, such as addressing his life insurance policy, became more urgent than they otherwise would have been.
In the wake of a loss, each piece that you can resolve allows some of the emotional burden to be unloaded as well. With each step, you get a little bit closer to your new normal. In the same way, planning your own financial future can help you get a clear view of the lifestyle your finances will support.
How to Build a Financial Plan
Financial plans are built from the bottom up. First, we pull out the biggest expenses.
What does it take to keep the lights on, food on the table, and maintain medical insurance? What other fixed expenses are in your financial picture?
From there, we add on goals and desires that aren’t requirements.
How much travel do you want to do? What activities do you want to pursue? We make a list of goals and discuss the financial plan that truly represents the future you want.
We start solving for discrepancies.
Given your set of circumstances, does this financial picture work?
If your spending isn’t where you want it, what can we do to change that?
Can you give up on one side of your spending to make something else a reality?
A financial advisor’s value is in giving perspective to see what we can do differently.
Lastly, we consider the assumptions at play in your financial plan. Following the current numbers in your income and expenses requires a set of assumptions: we assume you’ll work until a certain age and live to a certain age, and we assume inflation will rise at a particular rate and your investments will have an estimated rate of return.
Layered on top of these assumptions is the possibility that life may play out differently:
What if you don’t keep your job to age sixty-five?
What if your spouse dies at age seventy, but you live to be ninety?
These are all questions that need to be considered.
The Goal of Financial Planning
Financial planning is a tool to develop a frame of reference, and it allows us to set expectations for what is sustainable in the long term. If you put in the work of developing a good relationship, a financial advisor will understand your life and your dreams.
They’ll help you see ways you can be more careful with your spending, but also ways you can spend a little more and fully enjoy life, especially after a loss.
Like many areas of life, there’s a balance between blowing money and being too careful with it. There are certainly tight financial circumstances, and an advisor’s goal is to find the lifestyle that your money can support. It’s not all about paying the electric bill; there are so many opportunities that don’t cost a lot of money but can bring joy to your life.
For more advice on planning for your financial future, you can find Inheriting Chaos with Compassion on Amazon.
Jennifer Luzzatto is a Chartered Financial Analyst®, a Certified Financial Planner®, and a NAPFA registered financial advisor. She began her career in financial services thirty years ago as a fixed-income trader in a regional brokerage firm and went on to manage personal trust accounts, institutional portfolios, and a municipal bond mutual fund at a commercial bank. In 1999, she founded Summit Financial Partners, transitioning from banking to financial planning and investment advisory services. Jennifer holds a BA in Psychology and an MBA from the University of Richmond. She lives in Richmond, Virginia, with her daughter and their dog.