The above definition is given by a very well known and respected financial organization. Unfortunately, it is about as broad a definition you can give. To sell their business and demonstrate their expertise, credit card companies, brokerage firms, banks, investment advisors, counselors and other financial professionals, have invoked the term Financial Planning. What really is financial planning? What is its purpose?
In one sense, the definition above is correct. Financial planning is a process. However, what must be realized from the very beginning is that financial planning cannot be universally defined or applied. This is because every personal situation and family is unique and so is their financial situation. Therefore, financial planning really should be called “personal resource management.”
Each family and individual has unique family dynamics, personal perceptions about money, and feelings about its use. Because of the distinctive character of each person and their relationships with other people, managing resources becomes a more inclusive definition and tool for personal finance. Through resource management, a person or family can be free of the constraints of trying to fit into a defined financial planning mold and become more empowered to manage their own unique financial situation.
Even though resource management suggests a person or family is a master of their own destiny, it does not mean they should discount the use of experts. A broker may help choose the right investment for a retirement account, or a loan officer may help choose the best loan for a home improvement project. The idea is not to manage your own financial situation alone. The term management means identifying all available resources and integrating those resources to the best possible outcome.
Even though the term financial planning is discounted to a step in the management process, it does not mean that managing resources should be without a plan. Planning is critical to the management of financial resources. In the Marine Corps, there is a saying, “a plan is simply something to deviate from.” At some time or another plans will not go accordingly, AND THAT IS OK! A plan should be consistently revised, updated, learned from, expanded and reviewed. However, the plan is not the vehicle that makes a person’s financial situation successful – managing the resources is what facilitates success.
How does one start managing their resources? Before a plan is ever made, resources, obstacles, and actions must be identified. Be simple in your planning and specific in your execution. Start small; write down ONE simple paragraph about what you have, what you observe, or what you want, and build upon that one paragraph. Look at what you have, set a simple start and end point, identify a few steps, and work to accomplish those simple steps. Then start again, this time maybe two paragraphs, and repeat the process.
It is simple to say, but a journey starts with the first step in the right direction. Do not overwhelm yourself with large sophisticated plans or goals, as many “experts” would suggest. Start small; build your financial situational awareness by identifying your resources and work to manage those resources effectively. Then, when you are comfortable, begin the process again. This process, over time, and help you become an effective and educated manager of your own personal financial situation.
Jonathon Rowles Captain, USMC (Ret.)
Disclaimer: (have to do it) – This blog should not be considered financial, investment, legal or tax advice. Consult your licensed financial professional, tax advisor or legal counsel. This blog is for educational purposes only.