The Cycle of Financial Planning


The very word may give you pause, and the idea of a sustained decline in economic activity may have you ripping holes in your mattress to store cash for safe keeping.  A recession can be scary; however, it is a natural part of the economy, and may be a lot less uncomfortable when you have a solid financial plan in place.

Just as the economy goes through a business cycle with normal periods of expansion and contraction, recession and recovery, so do our clients’ lives.  An individual’s career will go through times of expansion (career development), to peak (highest earning years), to eventually a point where there is no earning income (retirement); however, much like an economic cycle, the stages are not always in a neat, predictable format. Financial Planning provides a dashboard that our clients can refer to, ensuring they stay on the path to replace that income so they can retire successfully.         

A key point of our financial planning process is that it is completely customizable to each client. We go through a comprehensive data gathering and discovery process with each client to look at all aspects of their financial life.  Their age and current life stage determine the topics of the financial planning process that would be most relevant to discuss and implement at that time.  For example, in client’s early career, we discuss retirement, but implementation is focused on risk management, savings and investing discipline, and solidifying an emergency fund.  It is critical to have the emergency fund and investing discipline through a recession.  As an accumulator reaches peak earning years and approaches pre-retirement, implementation will focus around strategies to build wealth and increase returns while limiting tax implications.  We begin to shift portfolios to prepare for distributions, discuss social security and pension strategies, and hopefully finish paying any college expenses.  We also have future lifestyle discussions to make sure budgets match their retirement “number.”  We run sensitivity and scenario analysis, including what would happen if you retired right before a recession! For clients enjoying their path through retirement, topics such as retirement income planning, tax efficiency, and estate planning are critical to keep a financial plan on track.  We also plan for next generation as well as uncomfortable topics such as health and cognition decline, loss of spouse, and late in life housing decisions.

Financial planning looks at your entire life, whereas investment management only looks at your assets. Prospective clients come in thinking they are well on their way to retirement and saving the right amounts in the right places; however, without an adequate emergency fund or proper risk management policies in place, an accumulator exposes their retirement funds to risk.  For example, if one person in a dual-income family loses their job (due to a pandemic or otherwise), the household’s income may not be able to meet their monthly expenses. Without an adequate emergency fund (we recommend at least 6 months of expenses), retirement accounts may have to be accessed early.  Not only would this have significant tax ramifications, but it can stall, and potentially derail, progress made towards reaching retirement goals.  For those in retirement, we typically recommend a large cash reserve and a properly structured portfolio to weather the expected market crashes and recessions that are more often than investors would like to believe.

In a recession or otherwise, unexpected expenses or income loss can cause high levels of stress and anxiety and it can be difficult to make rational decisions. This is why we are so passionate about financial planning, to ensure our clients can weather forecasted or unforeseen economic or personal storms.  Though peaks may seem short and valleys feel like they hit harder and last longer, it is important to remember that the process is a cycle. Each phase will pass in time.  Part of our mission when building and maintaining a financial plan is to help reduce the stress associated with troughs in both economic and life cycles by planning for the worst and educating our clients on their plan.  The last thing we want to see is a client stray from their plan and jeopardize their own financial future.

In short, going through the Pathfinder planning process will provide you with confidence to know that your plan can withstand the elements and our scenario planning that includes both favorable and unfavorable market conditions, will help maintain your peace of mind through market downturns.  Feeling confident allows clients to sleep well at night on mattress void of holes and lumps from stored cash, knowing that we have designed your financial plan to help weather even the strongest storms. We are here to guide you forward.