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The Power of Your Financial Plan

SUMMARY

95% of women will be their family’s primary financial decision maker during their lifetime1 and yet, women often feel unprepared to manage their finances. Having a written financial plan can dramatically improve your chances of achieving your goals.

 

Women and Money: Changes Are Coming

For women, the financial landscape has been changing for decades. Women control more than $39 trillion, or about 30% of the world’s wealth, and by 2020, that number is projected to increase to $72 trillion2. In addition to this wealth, nearly two-thirds (or 63%) of American women are breadwinners or co-breadwinners3. Yet despite this progression, just 20% of female breadwinners say they are “very well prepared” to make wise financial decisions, compared to 45% of their male peers4.

One of the best ways you can feel prepared and empowered to make wise financial decisions is to create a written financial plan. A financial plan brings together your life story, your ambitions, your dreams, and your assets into one comprehensive plan. It serves as the foundation for your life and your financial journey, encompassing all wealth management components – investments, tax planning, trusts and estate planning – that can protect you today, and also help you achieve Economic FreedomTM. Having a written financial plan works to limit detrimental behavior and avoid emotion-based financial decisions.

 

Ways to Give Your Financial Plan Power

It’s never too late to start thinking about your financial goals. Here are six ways to get started and power-up your financial plan.

Write down your goals and your vision for your financial future and be specific. What does success look like for you? When do you want to retire? What is the best possible outcome for your finances? Try to be as specific as possible when making note of your goals. For example, instead of just writing down “retirement” as one of your goals, try to visualize what that looks like. How old are you when you retire? Do you see yourself living in the same place? Are you traveling to all those places on your bucket list? These answers will serve as a good starting point to formulating your financial plan.

Share your financial goals with your family, your kids, your friends. Why is sharing important? It can help keep you accountable to achieve those goals you have set for yourself, and in some ways, can make those goals feel more real and tangible. For commonly shared goals (like saving up for a house with your spouse), these conversations can help to ensure that you’re both on the same page about the timing and how much you both need to save. Sharing financial goals with your kids (especially your daughters) can help them learn the importance of financial education, and give you a chance to model behavior that demonstrates good money values.

Break down the timeline. Let’s face it – most of us are procrastinators with at least one thing in our lives. A study showed that 40% of Americans say that financial planning is “not their favorite thing to do, but they know it needs to get done, like a medical check-up5.” Breaking down your financial goals and action steps into one-year and five-year increments can help you formulate specific steps to achieve your goals. For example, if you have kids, you already know that you have an 18-year time horizon before you’ll need money for their college education. Setting up those annual checks can help you make sure you stay on track.

Create milestones to measure success along the way. With the example of saving for your kids’ education, perhaps you can use those big grade markers (the transition to middle school for example) to measure your progress and track your success. With retirement planning, you could use milestone birthdays or a job change to check in on your progress.

Add some fun to celebrate your wins. The road to achieving your financial goals shouldn’t be a drudge. Incorporate elements that are important to you, whether it’s traveling, taking up new hobbies, or other activities that add meaning to your life.

Revisit your plan when life changes. Part of the power of the plan is the ability to have something to turn to when life happens. Whether it’s marriage, the birth of a child, or career change, reviewing your plans and making the appropriate adjustments along the way will help ensure you stay on track to achieving your financial goals.

 

The Power of Writing It Down

Having a written plan is critical to helping you achieve your financial goals. Why? A study has shown that you become 42% more likely to achieve your goals simply by writing them down on a regular basis6. A written financial plan serves as your center, always keeping you focused on and accountable to the goals you want to achieve.

It’s good to keep in mind that your financial plan is a living, breathing document. So, as your goals change and as you face both expected and unexpected life events, your financial plan can change with you. We encourage you to speak with your advisor about how we can help your financial plan come to life.

 

Additional Resources

Want to learn more about the value of having a financial plan? Listen to Laura explain how having a financial plan can change your life in The Power of the Plan podcast, episode 33.


1 Family Wealth Advisors Council,Women of Wealth,” 2011.

2 Leonhardt, Megan, “Women’s Wealth Growing Faster Than Men’s,” 6/7/16.

3 The Shriver Special Report, “The New Breadwinners,” 2009.

4 She-conomy.com, “Women and Spending.”

5 Northwestern Mutual 2018 Planning & Progress Study.

6 Morrissey, Mary. “The Power of Writing Down Your Goals and Dreams,” 9/14/16.

Transcript:

Doug:                    Do you have the power of the plan working for you? Do you know which issue, cash flow, or investment returns, should be your focus right now? Joining me today on the podcast, Laura Combs, to discuss, with passion, the power of the financial plan.

 

Announcer:        The Science of Economic Freedom is intended as an investor education resource. The views and opinions expressed on this program should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor and read any investment prospectus carefully before making any changes to your investment portfolio.

 

This program is sponsored by Mercer Advisors. Mercer Global Advisors, Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors, Inc. is the parent company of Mercer Global Advisors, Inc., and is not involved with investment services.

 

Doug:                    Welcome to The Science of Economic Freedom. I’m your host, Doug Fabian. This podcast is all about helping you achieve your financial dreams. We call that economic freedom. This program is about your journey to achieve economic freedom for yourself and your loved ones. Today we want to help you identify your next step on that journey.

 

This is Episode 33: The Power of the Plan. Joining me today is Laura Combs, certified financial planner, client advisor, Boulder office branch manager, and investment committee member at Mercer Advisors. Laura is a 10-year veteran of the business and has a real passion for the power of the plan. Laura, welcome to the Science of Economic Freedom podcast.

 

Laura:                    Thank you, Doug! It’s a pleasure to be here.

 

Doug:                    We have been talking about recording this show for some time. I’m so glad that the date has finally arrived. We have a great subject for our audience today, the power of the plan that is just awesome. Now, Laura, I want to begin, because this power of the plan is something that you’re so passionate about. Why is that? Why do you feel so passionate that people should have a financial plan, and why do you believe it’s so powerful?

 

Laura:                    Doug, the plan is extremely powerful because it has the ability to change people’s lives. What do I mean by that? When we think about a plan and putting that together, this is the most important things for people when they’re creating their financial future, and there’s a topic out on the world right now, mission, vision, and values. This is a hot topic right now, and I’m really passionate about incorporating the plan into those themes.

 

The mission, how do clients, how do listeners achieve economic freedom, that peace of mind that they have enough time to retire? Moving from mission on to vision, this is really the goals peace. What does economic freedom mean to individuals? This, Doug, could be different for everybody depending on when you want to retire or what your goals are, what that peace of mind is, that vision is going to change and it’s something that’s constantly moving.

 

And that last piece is that values, and I love this, and this is what I’m so passionate about, is what is important to you about money? What’s important to listeners about money? Is it security, knowing that they’re going to be okay? Is it freedom, being able to do the things that they want to do and not having to worry? Or maybe for some people it’s choices, being able to buy a house or buy a new car or send their kids to college.

 

That mission, vision, and values piece is so important, and, again, that plan, it changes people’s lives, and that’s why I love it.

 

Doug:                    Now, Laura, you get into these discussions with a brand-new client, you have that first interview, they’re in your office, sometimes done on the phone, but you might have a couple in front of you. How do you begin the conversation? How do you get both people talking, and what kind of questions do you ask?

 

Laura:                    The financial plan, or how you start building that, it’s really a living, breathing document. It starts with goals, putting together those goals and assumptions. Again, like I mentioned with that values piece, it’s what’s important to you about money.

 

Oftentimes if I’ve got a couple or an individual, it’s just how was money growing up for you? For some people, that really impacts how they view money and what’s important to them in their financial plan.

 

A lot of questions revolve, Doug, around establishing the relationship, gathering a lot of their data, how much they’re making, if they have some savings, again, in light of those goals, and then really starting to build from there into the investment piece, but that first initial conversation, that plan, that’s really the foundation that everything builds and develops on before you can even start recommending or making implementations for those recommendations.

 

Doug:                    Let’s talk about some of the elements of a financial plan and what a financial plan is about. You and I are in this business, we deal with this all the time. Some people just might not know. When we say “financial plan,” what do we mean, and why do people need a plan?

 

Laura:                    The financial plan, the basis of that is the goals and objectives, but there’s a lot of other pieces that come out of that. To me, the top priority, or the starting point for building that plan, is really the goals and objectives, and I think you should be extremely specific with these, whether it’s a young couple, vacation fund they want to start building, that’s something that’s important to them, or someone that wants to retire. That goals piece really drives a lot of it.

 

Some of the other elements that you’ve touched on the show before, even in the foundational podcasts you’ve done, looking at the balance sheet, putting together your assets and liabilities. That’s going to be a key element of the financial plan. Almost just as important is going to be that spending plan, or cash flow. That’s going to be critical in building the financial plan.

 

Other elements will come into play, and the thing that I love about the financial plan is that it’s going to be completely customizable depending on where people are, what their goals and objectives are or their current circumstances. Maybe that insurance is something really important for individuals. They want to look at having those needs covered in the event that something happens to them or to their family.

 

A lot of people, education is a big goal. I’ve got three children, and the idea of how do you put together that plan to save for education for their future, that’s really important to individuals.

 

Obviously, estate planning comes into play. Having those wills, powers of attorney, those are all pieces or elements, and then the investment plan. That’s going to drive, be that economic engine to really drive those goals and objectives so that clients can achieve economic freedom, again, that peace of mind, not having to worry about money. Those are what I would consider the key elements and sections to that financial plan.

 

Doug:                    How does a financial plan help us in terms of investment strategy? How does it help us determine what our allocation should be and our expectations? Talk about that.

 

Laura:                    The financial plan, Doug, really sets the context for the investment strategy. You can’t have the investment strategy without first doing the financial plan. I mean, that, to me, is…the financial planning process is ultimately a prerequisite to the investment success.

 

I think about, my dad recently rode his bike across the United States, and he didn’t just do that, just kind of jump in, hop on his bike. He spent hours and time really putting together a plan for success. He started in New York City and rode to Anacortes, Washington. Taking the time to go through that first plan process really then was able to provide success in his outcome.

 

It’s kind of the same with the investment strategy. How do you take the time to put together your plan and then, from there, then you know how fast you need to get there, how fast my dad needed to ride, what route he was going to take, was it going to be a long game? Again, that financial plan determines how much risk and return clients or individuals need.

 

What’s appropriate? Is it a long-term time horizon? They need the money in 30 years? Or is it something, a down payment for a house, that they might need in three to six months? That financial plan, I think, really sets the context for the investment strategy and helps us keep in focus where we’re going and, ultimately, the best route to get there.

 

Doug:                    Let’s talk about timeline. People have different goals, some of the goals might be shorter-term, some of the goals are longer-term. But how does one’s personal timeline and risk tolerance work into their investment strategy?

 

Laura:                    The idea that the longer the time horizon someone has, really, the more risk you could take. Doesn’t mean that you have to, if you’re not comfortable with it. Again, that’s part of the financial planning process, determining one’s risk tolerance.

 

When I sit down with individuals and families, that’s a long process. How much risk are you willing to take? That’s going to be different for everybody, again, depending upon age and stage of life. I’ve got clients in their 30s, and they’re really going to be working for another 30+ years, and they may not need any of their savings or their investments really for another 50 years and they’re in their 80s by the time they actually need that from a distribution strategy.

 

Other instances, we’ve talked about education a little bit. When a child is born, they’ve got that really 18-year time horizon really before they need that first dollar for that first tuition check, so those time horizons can be longer or shorter and, again, those families can take on maybe more risk if they’ve got a longer time horizon, but maybe they need to tailor it back a little bit if those goals are coming up in the next couple of years.

 

My rule of thumb is, any money you need in the next 1-3 years, that should really not be in the equity market. That should not be at risk, because you need that money to be there, and you want that in an environment that’s going to be there and not have the volatility of the investment markets.

 

Again, I think it’s going to be really personal for everybody, and, ultimately, Doug, even within that, people might have different accounts, different buckets of funds, that those could have different time horizons or different asset allocations based on when those funds are needed.

 

Doug:                    Let’s talk about investment strategy, and one of the things I wanted to remind listeners about Laura’s background and expertise is she is serving on the Mercer Advisors investment committee, so she’s very in tune to the strategies we’re implementing for clients, and, Laura, you’ve been around Mercer Advisors for 10 years, you have watched the evolution of our investment thinking.

 

When you go back 10 years ago, or 7 or 8 years ago, we were predominantly building portfolios with only mutual funds, and today we certainly can use mutual funds, but we can use exchange traded funds or even individual securities for clients today.

 

So, talk about how the investment thinking has changed. What’s evolved? Why now are we using all of these options for our clients?

 

Laura:                    That’s a great point to bring up, Doug. Like you mentioned, 10 years ago, and even beyond that, back to 1985 when Mercer was founded, we had a different investment vehicle that we would use. Like you said, 100% Dimensional Fund Advisors, at least 10 years ago. At the time, that was the best strategy, the best mutual fund, the best place for our clients to be. They were low cost, extremely well diversified. But, over time, the market has evolved, the landscape for investments have evolved to meet the needs for individuals.

 

Mercer and the investment committee, the philosophy is still guided by scientific reasoning and theory, so a lot of the portfolios, a lot of the investment vehicles that we choose, we’re agnostic, vehicle-agnostic. It doesn’t matter to us if we’re using mutual funds or exchange traded funds or separately managed accounts. To me, it’s, and to Mercer and the investment committee, whatever is going to meet the needs of those individuals.

 

Depending on…for example, I had a client recently that had a very concentrated position in a specific security, and so to unwind that, we built, using a separately managed account, an account to tax-loss harvest around that to offset capital gains, and to unwind that over the next five years.

 

Ten years ago, we wouldn’t have been able to do that because that just wasn’t available in the marketplace. So part of the investment committee’s job and ongoing processes is we’re always looking for ways to best serve and meet our clients’ needs, and best steward their wealth that they’ve entrusted us.

 

To us, again, doesn’t matter what type of vehicle. Again, low cost is extremely important, that’s what we’re always looking at, but also some other things that we’re seeing now available are socially responsible investing, the ability to kind of screen for, for example, female-run companies, or also looking at social issues. Those are things that are important to investors today, so we want to make sure that we’re able to provide the best vehicles.

 

And, again, mutual funds, exchange traded funds, to me, it’s what’s going to help drive that plan, and always bringing it back to the plan. How are they going to achieve economic freedom?

 

Doug:                    Now, Laura, the investment committee has some guiding principles, and I believe, you know, we don’t have to go through all of them, but just talking about some of them really kind of explains how we’re very grounded in what we do for our clients, so would you share some of those guiding principles with us?

 

Laura:                    Absolutely. To start, I think everything comes back to the plan. We’re talking about the power of the plan, and one of the guiding principles of the investment committee is, like I mentioned earlier, financial planning, that high-quality financial planning is a prerequisite to successful investing. That’s where everything starts. Stewards of our clients’ wealth, that’s a big calling, and we want to step into that.

 

We’re also looking at the long-term picture, Doug. We’re not speculating, we’re not day traders, we are long-term investors, and that’s what we want to provide for our clients.

 

Also, quantitative factor-based investing. Don Calcagni, our Chief Investment Officer, has been on the podcast a number of times and highlights this strategy specifically, that factor-based investing. How do we tilt the portfolios to outperform with those different factors?

 

Also, risk and return. Those are linked, and we have to pay attention to both. You can’t have one without the other. And, really, when we look at, whether it’s mutual fund managers or ETFs or separately managed accounts, we want to work with managers that really share our values and our approach to managing client wealth. That kind of comes down from that philosophy piece of making sure that we are aligned on the goals for our clients.

 

Doug:                    We’ve had a real proliferation of indexed investing. Again, there’s some firms, you know, Vanguard has done a great job of building their business around the concept of income investing, the low cost of income investing, the low turnover of income investing, and we certainly adhere to some of those guidelines, but talk just a little bit about how our investment strategies are different than a pure indexing strategy.

 

Laura:                    I think that’s a great point to bring up, and Vanguard has done a tremendous job of keeping costs low, which is what investors want in the market, but what we’re looking at at Mercer, and, again, what our investment committee is really honed in on, is that factor investing, and this is, Nobel-prize-winning academics are looking at these things and really focusing on the key factors, Doug, that are going to drive stocks higher, that are going to outperform the market or traditional indexing.

 

Mercer, we’re looking really at five different factors, size, so companies that are small versus companies that are large, we’re going to look and tilt the portfolio toward small companies. Also, price is really important. Companies that have a value characteristic versus a growth piece. They’re going to look at that as well.

 

Another factor that we focus on is momentum. How quickly is a stock moving in one direction or another? We want to focus on companies that have high momentum. We want to add those factors in. Another factor that’s come onto the scene in the last couple of years and a lot of academics are looking at this as well, is kind of that profitability piece, companies that are profitable and really tilting towards that in our portfolios.

 

The other piece, the fifth factor, Doug, is low volatility. Debt levels with corporations are a key component, and keeping those low, because there’s going to have a lesser sensitivity to the overall market, so we want to look at those.

 

And, again, I know you did a podcast with Don, I think Episode 14, if listeners want to go back and listen on that, really on going in a lot more detail on factor investing. But really our view and the investment committee is, by tilting to these factors, you’re going to have a better investment result long-term than simply indexing.

 

Doug:                    Laura, so much research has done around the concept of bad behavior. I’ve done a couple of podcasts on it. It’s a subject that I want to continue to come back to for investors. The studies that we have referenced, the DALBAR study, for example, which looks at the behavior and investment returns of mutual fund shareholders over long periods of time…

 

I think that the audience understands this concept that people do get spooked. I’ve shared with the audience a number of times in March of ‘09, at the low of the financial crisis, at the bottom of the stock market, more money moved out of mutual funds to a cash position or to bonds than any single month in the history of mankind.

 

That was the absolute low in the market, and I think we can all look back and say, man, was that a bad mistake for all of those people who sold at that period of time.

 

We had exact opposite. One of the things that happened at the beginning of this year, January of 2018, we had a 5-year high in investors buying into stock mutual funds just looking at the latest time cycle. Now, again, we know that 2017 was a great year in the markets, and it just so happens that people feel good when things are going up and feel back when things are going down, and this constant move in and out is what we deem to be bad behavior.

 

So you’re in a situation of being on the investment committee and working on this issue for our clients, but also you’re working with your own clients on this issue who get spooked during difficult periods of time in the markets.

 

So just talk to us about your philosophy relative to behavior and how you talk to clients about this, and the advice that you have for listeners.

 

Laura:                    I think we come back to the power of the plan, and that’s where it all starts. Depending on, like you said, whatever’s going on in the market, if we’re seeing a downturn or we’re at all-time highs, having that written plan, Doug, I can’t say it enough, having that plan helps clients, helps investors avoid making bad decisions around money.

 

If you’re focused on what’s going on in the market, then you’re off of the vision. If we go back to the mission, vision, and values. What is the vision? What do you want to create? It doesn’t matter necessarily what’s going on in the market as long as you’re working towards those goals and you’re able to continue with the plan.

 

Like you said, jumping in or out of the market of the wrong time, and that to me is kind of the opposite of the number-one rule of investing, right? Buy low, sell high. It’s that behavioral bias that people run into where they have that fear and they want to jump out at the wrong time, but working with that advisor, coming back to that written financial plan, lets individuals know, it doesn’t matter the noise that’s going on in the market. My plan is still on track, and I know, if history’s going to repeat itself, the markets are going to go up and they’re going to go up. It always just comes back to the plan.

 

It’s just like, Doug, any fitness goal. You’re working with a coach. You always come back to what your plan is. How are you going to get to those goals, how do you push through, maybe, tough times so that you continue to grow to achieve your goals, and that plan is kind of the same thing, it’s that coach, it’s having someone in your corner saying you’re going to be okay, the plan is still on track. Even if the markets go down, the plan is still on track.

 

And so it’s that constant connection, and I think, like I mentioned earlier, the plan is going to be that living, breathing document, Doug. It’s going to move and change, and it always needs revision, it always needs something to be reviewed and looked at, whether that’s quarterly, semiannually, it’s important to come back to the plan, and then it helps clients and investors recenter again what’s important and continue working towards those goals.

 

Doug:                    Laura, changing subjects on this for a few minutes, I wanted to just do some dialogue with you on 401(k)s. I talk about 401(k)s from time to time with listeners. I continue to get questions from the audience about 401(k)s, and so I want you to take the role of being a financial planner and you have somebody in your office and part of your planning aspect is asking them about their 401(k).

 

What is your coaching to those in the audience who have a 401(k)? What should they be doing on a regular basis relative to their 401(k)? How should they be evaluating their choices? Just give us some basic strategies and advice around 401(k) investing.

 

Laura:                    The first piece is, fund your 401(k) at whatever level you feel like you can manage. For most individuals, there’s a maximum of $18,500. If you’re over age 50, you can fund another $6,000. So funding at some level, doing that auto-deposit, Doug, is critical. Just putting that money in, it allows you to dollar cost average into your portfolio.

 

The other thing that I tell a lot of clients is, if you have an employer match, most companies offer an employer match, which means you put in 5%, for example, the company puts in 5%. Doug, that’s free money to listeners, to clients, and so that is absolutely take advantage of that match.

 

The other things is, when we talk about…I mentioned factor investing earlier. I would encourage clients and encourage listeners to look at the options available in your 401(k) menu of choices and determine if you’ve got exposure, or it’s available, to that factor investing like we talked about, those different factors, size, price, momentum, profitability, and the low volatility. Look at those and see if you can design your portfolio, work with your advisor to help you design that.

 

Those are some of the key things that I would look at, making sure, again, you’re funding it at some level, taking advantage of that employer match if that’s there for you, and then also incorporating that factor style investing into your 401(k) investment strategy.

 

Doug:                    Awesome. Great advice. So, Laura, one of the things that I wanted to talk about today is, I want listeners to leave the podcast feeling like they’ve learned something or they now have some aspect of their financial life that they need to focus on a bit closer.

 

To help the listeners figure that out for today, because we’ve talked about a lot of subjects, I wanted you to just talk through some best practices to achieving economic freedom.

 

Every single one of our listeners wants to achieve economic freedom. They want to have peace of mind. They don’t want to have to worry about money. And, certainly, as we understand, it’s a journey, but there are best practices that you can be following, and as we go through these best practices, ladies and gentlemen in the audience, I want you to think about, “Oh, I could improve there,” or “That’s something I need to focus on.”

 

So, Laura, I know you’ve prepared some best practices for us. Let’s start off with the first one.

 

Laura:                    The first one would be maxing your retirement accounts. Again, we just came off that question on 401(k)s, and so whether listeners have a 401(k) plan available or even just an IRA, taking advantage of the ability to put money in, whether that’s pre-tax or post-tax, to be able to fund that, that’s going to be, again, the first piece, the great opportunity to maximize that retirement savings.

 

Doug:                    And I want to remind listeners, the level of participation in the traditional IRA in this country is extremely low. I don’t have the statistic right in front of me, but it’s less than 20% of Americans are actively and regularly contributing to their IRA.

 

Now, if you’re maximizing your 401(k), that’s great. You’re doing the right thing. But for those in the listening audience who don’t have a 401(k), the traditional IRA is a fabulous tool, and if you’re under the income cap for the Roth IRA, the Roth IRA is even a better choice.

 

So, maximizing your retirement accounts, having that money come right out of your paycheck and go into your retirement accounts, is just key and critical and that’s a fabulous first best practice for us.

 

Laura, what’s next?

 

Laura:                    Next is using capital markets for investments, taking advantage of the equity markets, taking advantage of those fixed income markets, but putting that money to work, Doug, to really drive that economic freedom plan, that’s going to be the next piece, is taking advantage of moving markets.

 

Doug:                    You know, I really feel that sometimes people don’t realize one of the great opportunities we have as Americans is the most diverse, most sophisticated, best performing capital markets in the world. When I come across somebody, and, Laura, maybe this has happened to you, where somebody’s all cash or they’ve done a great job of savings but you ask them, and I had a couple who was a podcast listener who went through wealth coaching for me, and this is a couple that’s in their 40s, and they have $250,000 in the bank.

 

That’s a fabulous amount of money to have accumulated, but, as I spoke to the couple, they just had little or no confidence relative to investing. They actually have hired Mercer Advisors to handle their accounts for them, but I just want to reinforce to the audience the long-term performance of the capital markets. I’m talking both the bond and the stock markets here in the United States, and, again, now that we are a global economy, there’s fabulous opportunities to be able to grow your money overseas.

 

So you have to come back to this fundamental belief in innovation. One of the things that I did with my daughter Morgan when she was in the fifth grade is I went to her fifth grade class to talk about the stock market. The example that I used was Disneyland, and of course we lived in southern California, and when Walt Disney developed this idea for Disneyland, there was not a single bank in the country who would lend him 10 cents for this idea.

 

“Are you out of your mind? This is something that has never been done.” Walt Disney went to the capital markets and gave people a piece of the action in order to be able to raise the money to great Disneyland. And, of course, Disney stock has been one of the story stocks of our economy and of the history of this country.

 

So when we talk about the capital markets, you have to get a little nostalgic, you have to get a little excited in order to be able to overcome your fears, because the capital markets, there’s volatility. We go through down markets sometimes. But when you look at them in the context of history, there is no better place to invest.

 

Laura, number three?

 

Laura:                    Number three, do you have a plan? We’re obviously centering around this concept today, but, Doug, for listeners, making sure they have a plan, and whether that’s getting together with a certified financial planner or wealth coaching, those are all options, but putting together those goals and objectives, starting to write that down.

 

You’ve got some great resources on the Science of Economic Freedom website that starts with how do you put together goals, how do you start that process? So I’d encourage listeners to take a look at that and start building that plan, because that’s going to ultimately set you up for success in the future.

 

I know a Harvard MBA did a study in the late ‘70s on the concept of goal setting, and people that wrote down, Doug, wrote down their goals on paper, pen and paper, to bring it back to years ago, pen and paper, wrote them down, they were more likely to achieve those goals than if they didn’t take the time to write that down.

 

In today’s world of busyness and instant media, the ability to sit down, take the time to draft that plan, that’s the most important thing that we can start to look at is, again, that third takeaway is, do you have a plan? I encourage listeners, start today, write something down that you want to do in the next 6-12 months, and start putting that plan together.

 

Doug:                    And I want to also mention to listeners that most Americans do not have a financial plan. So you immediately move yourself into the category of those who are going to be more successful because they have a written plan if you will just begin your written plan.

 

You immediately start to increase your chances of success by having a written plan. Awesome stuff, Laura. Next on your list?

 

Laura:                    Next is managing taxes. Tax is something that most people, maybe listeners, think about once a year come April when we’ve got to file taxes, but managing taxes throughout the year, Doug, is a key takeaway because, if you’re not looking at taxes, if you’re not paying attention to the impact that that has on your investments and your overall plan, it can eat away at performance return. You can be giving away money by not paying attention to that tax piece.

 

Again, when we talk about different positions and tax-loss harvesting, there’s a lot of strategy that you can put together throughout the year, not just in April, but from January through December, Doug, to take action on how do you lower your taxes, pay less tax, and ultimately keep more money in your pocket.

 

This is something that, again, most people think about once, maybe twice a year, but having that ongoing conversation around, if I’m selling something in my investment portfolio, what are the consequences? Does this create a gain? Gains are good, I love gains. But also, what is the impact on my bottom line, and how does that impact my taxes and the tax rate that I’m going to be in?

 

Paying attention to taxes is that number four on my list here.

 

Doug:                    And, Laura, let me connect number four to number one. I mean, maximizing your retirement accounts lowers your taxable income, puts the government in partnership with you. The government wants to encourage you to save money for retirement, and I just want to remind people that a way to manage your taxes and lower your taxes is to contribute and save for your retirement. It’s just the right thing to do.

 

Okay, Laura, last on your list.

 

Laura:                    Number five, Doug, is cash flow. Cash flow is extremely important. It may actually be even more important, in my opinion, than investment returns. I know on your last episode, I think Al Zdenek was on highlighting the importance of cash flow.

 

When cash flow is working, it almost feels like everything in that plan is working, and so, to me, taking a look at that cash flow, how much is coming in, how much is going out, what’s the buffer, what’s that savings goal, and, again, most Americans, Doug, don’t know how much is coming in or how much is going out.

 

So taking the time to figure out, what I’m spending? Maybe it might even be, how much do I make? Some people don’t know how much they make. And so taking a look at, where are areas that I can improve my cash flow in order to achieve my goals maybe sooner, again, depending on if you’re accelerating a mortgage.

 

I have some clients that were accelerating this mortgage because they wanted to pay down debt. Don’t get me wrong, paying down debt is wonderful, but also taking a look at, well, wait, can I pay down debt and accumulate wealth at the same time?

 

Just taking a different approach to cash flow can provide a better result, often, for that economic freedom goals for that long-term financial plan.

 

Doug:                    One of the things that I do with every podcast is I talk to listeners about action steps, and I’m going to go through my action steps right now before I ask Laura to give us some closing comments on the power of the plan.

 

Ladies and gentlemen, you’ve been listening to Laura and I chat here about the power of the plan, and here are three things that I believe will help you take away and focus on what you should do next in your journey to economic freedom.

 

Number one is just answering this simple question: Do you have a financial plan? Do you have a written document that has goals and objectives, that lists your balance sheet? Have you done some cash flow and spending analysis? We have all of these tools and resources at The Science of Economic Freedom, but there is nothing like getting professional help.

 

If you have not sat down and experienced working with a certified financial planner, this is something that would accelerate your ability to be able to have a document and to know what you should do next, to get a professional opinion and the like. So I would encourage you—you can start this financial planning process on your own—but to really flush it out, getting professional help would be advisable.

 

Next, what is more important to you? What is a bigger issue to you right now? Cash flow or investment returns? And I believe that this answer is going to be easy for most people in the audience to make. If you’re feeling like you’re not saving enough money, if you’re feeling tentative about your current financial situation, your problem is not your investment returns, your problem is around cash flow, and you don’t either understand your cash flow, know your cash flow, have confidence in your cash flow, so that should be your focus from this podcast. It should be about cash flow.

 

Now, if you’re feeling like your cash flow is solid and you understand your cash flow situation, but you just don’t have confidence in your investment strategy, you don’t feel like you’ve been participating in the capital markets, then your problem is in the investment returns arena, and that’s an area that you need to focus on.

 

So cash flow versus investment returns. Don’t try to do both at once. One should have a higher priority over the other, and I think, after this discussion today, it would be relatively easy for you to figure out which of those two is more important to you.

 

And then, lastly, it’s, one of the great things about planning is, you can always start over. You can always start again. You can always begin. There’s nothing holding you back. A very simple exercise, and, again, we have a special report at The Science of Economic Freedom on goal setting, and I did podcast number 4 on goal setting, but if you haven’t written down your goals and objectives, that is the absolute beginning of financial planning, is to have written goals and objectives, and if you don’t have them, you know it. If you do have them, update them, because this is what we need to do from time to time is update our goals and objectives.

 

So those are our three action steps from today’s program. Let me go back to Laura Combs. Laura, I have enjoyed this conversation immensely. Thank you so much for being on the podcast with me today.

 

Laura:                    My pleasure. Great to be here.

 

Doug:                    And so, Laura, I just wanted to give you the opportunity to give us some closing comments, and I just know through our one-on-one conversations as colleagues, you’re so passionate about planning. Give us your closing thoughts on today’s show.

 

Laura:                    Thank you, Doug. To start, you’ve highlighted this on your last action item, and to me this is one of the most important things, is just taking the time to write down your goals, and I would encourage listeners, talk with your spouse, talk with your kids, talk with your family about what’s important to you.

 

To kind of bring it back to where we started with the mission of achieving that economic freedom, that vision of what does that mean to you, what does it mean to your family, and those values of what’s important to you about money. Go through those and spend some time talking with those that are closest to you to really make sure that everyone is on the same page, that you’ve got that common mission, vision, and values.

 

When you have that plan, sometimes plans can seem like the objective is so far away, and so I encourage listeners, encourage clients, break down the timeline. Break it down into one-year goals. What are you going to do next year, 2019? Break it down to five-year goals. What are we going to do in the next five years?

 

And I also encourage listeners, add a little bit of fun. Financial goals can be fun, and so what are those things that are important to you? Is it travel, do you have some hobbies that you enjoy? What things add meaning to your life, and make sure that those are incorporated into your financial plan as well.

 

Some other takeaways, review your portfolio. Make sure that you’ve got factor investing, that you’re tilting towards those factors. Take a look at that as well. And, again, to me, it’s a privilege to work with clients, to put together that plan. The reason I’m so passionate about it, Doug, is it changes people’s lives, and I’ve seen it.

 

I’ve seen people who are in a tough financial situation be able to achieve economic freedom, and they don’t have to worry, and they did that through financial planning, and now they’re living life free of financial burden.

 

Doug:                    Awesome, Laura. Great to have you on the podcast. Thanks so much for joining us today.

 

Laura:                    Absolutely. Thank you for having me, Doug.

 

Doug:                    I hope you enjoyed today’s podcast with Laura Combs on the power of the plan. And I just wanted to extend an invitation to all listeners of The Science of Economic Freedom that wealth coaching is a service that we offer at no charge or obligation to help you find your next step on your journey to economic freedom.

 

I know the financial markets can be confusing, and financial planning overwhelming, but one of the goals that I have with each wealth coaching session is to help my listeners identify their next step on the journey.

 

If you would like to take advantage of our wealth coaching offer, send me an email. My email address is [email protected] That’s [email protected]

 

This is Doug Fabian. Thanks for listening.

 

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