The Power of Financial Planning

If you’re old enough, you remember the days before GPS. If you were going to embark on a road trip, you needed a map. Sure, you could set off without a map and maybe reach your destination, but it would take a lot longer and be a lot more difficult. A financial plan is your financial map, a plan to help you reach your destination, your end goals. Well, not goals. If you’ve listened to me in the past, you know I dislike the word “goals.” I prefer dreams. Your dreams might include buying a home, funding your children’s education, and the end goal for most of us, a well-funded retirement.

We talk a lot about financial planning as a concept, so today, I want to talk about a real-world example.

Financial Planning in the Real World

A friend and colleague, Anthony Ruffalo, said to me, “Inflation is what we call it when you don’t own something, and the price goes up. Appreciation is when you do own something, and the value goes up.”

It was an interesting perspective. When the price of gas is going up, that’s inflation. We don’t own gas, but we need it, so we have to buy it. When you own a hard asset, over time, it inflates in value; that’s appreciation.

This brings us to our real-world example of financial planning in action and how a good plan is dynamic.

Three or four years ago, I started working with a couple whose dream was to retire early and move to Europe. They are child-free, so while it’s easier for them to pick up and move than it would be for a couple with children, it still requires a lot of planning. And not just financial planning; there are language barriers, cultural customs to learn, and regulations and laws to understand.

Initially, they planned to sell their home and move abroad in about five years. But home values have risen substantially in recent years. But now, interest rates are rising, which has traditionally driven home prices down. When it costs more to borrow money for a home, fewer people are doing it, and those who do it, despite rising rates, can afford less house than they might have when they were initially considering buying.

This situation has prompted the couple to fast-track their plans. They’re going to sell now while home prices are still high. But where will they live in the meantime? Europe is still a few years away. The area they live in is undersupplied, and rent is expensive. They decided to rent a small apartment downtown. The rent is similar to their mortgage payment, a bit more actually, and they’re giving up things like more space and a backyard.

But they don’t know what home prices will look like when they are ready to move to Europe. Prices and good now, so they’re locking it in. They’ll move into the apartment and stay for one year. Depending on what housing prices look like, after a year, they may buy a small house for cash and live out the rest of their time in the States there. Once they make the big move, they’ll decide whether to sell the house or keep it and rent it out. Historically home values increase, so renting it should give them another nice passive income stream during retirement.

This all sounds very well thought out, and it was. But this all coalesced over just seven to ten days! How this scenario plays out shows not only the importance of having a financial plan but having a dynamic financial plan. The current plan isn’t a huge deviation from the original plan, and that’s how it should work in most cases. But the plan was fluid enough to jump on an opportunity.

And it shows the importance of having a trusted financial planner. When making big decisions and especially when having to make them fast, having a sounding board makes a huge difference. Are we doing the right thing, what even is the right thing? That neutral, outside opinion can give you peace of mind in these sorts of fast-moving situations. So you can continue pursuing your dreams and Create the Life You Love!


Listen to the Full Episode:


What You’ll Learn In Today’s Episode:

  • How a financial planner can help you make the best decision for you.
  • The power of having an expert to bounce ideas off of.
  • How a financial planner can help you get out of your head.
  • How a planner can help you with major life decisions.

Ideas Worth Sharing:

“As rates go higher, traditionally, values of assets will go down.” – Jonathan Bednar

“A bird in the hand is better than two in the bush.” – Jonathan Bednar

“It’s allowed them to really think about what they’re trying to do—and allowed them to think through different scenarios.” – Jonathan Bednar

Resources In Today’s Episode:

Enjoy the show? Use the Links Below to Subscribe: