You Need a Better System (and a good Advisor!)
One of the most common financial planning mistakes I see busy people and families make has very little to do with spending too much, saving too little, or making “bad” financial decisions.
It’s this: They try to optimize individual financial decisions instead of building a financial system where everything works together.
And I understand why. Trust me...I get it.
When you’re raising kids, building a career, managing a household, and trying to plan for the future, there is always another financial question to answer. Life is busy, and we tend to make financial decisions one by one—as they come.
Should we put more into the 401(k)?
Should we pay down the mortgage?
Should we start a 529?
Are we investing enough?
Should we refinance?
Should we put money into a Roth IRA?
Are we paying too much in taxes?
There are seemingly endless opportunities to make a “better” financial decision.
But the problem is that a collection of individually good decisions does not necessarily create a good financial plan.
In fact, I often see people doing all the right things and still feeling like their finances are harder to manage than they should be.
Think… one boat and many decision oars rowing in different directions. Going… nowhere.
Here lies the problem with trying to optimize everything.
For example, imagine a family that is maxing out their retirement accounts. That sounds great!
But they have very little cash available for an emergency, so every unexpected expense goes onto a credit card.
Or maybe a family is aggressively saving for their children’s college education while forgetting to factor in their own retirement.
Or perhaps a couple can technically afford a $900,000 house based on their income, but the payment leaves very little room for travel, childcare, home repairs, or simply enjoying their lives.
None of these decisions are inherently “wrong.”
The problem is that they’re being made in isolation.
Financial planning isn't about finding the perfect answer to every individual question. It’s about understanding how all of the answers fit together.
Let me be the first to say it: maxing out retirement isn't always the priority!
Retirement savings are important. For many families, contributing consistently to a 401(k), IRA, or other retirement account should absolutely be part of the plan.
But “save as much as possible for retirement” isn't a complete financial strategy.
What happens if your water heater breaks?
What if your car needs a $4,000 repair?
What if you decide to take six months off work?
What if one spouse changes careers?
If all of your available cash is going into retirement accounts, you may have built a great retirement portfolio while creating unnecessary financial stress today.
A better system considers retirement savings, emergency reserves, short-term goals, and cash flow together.
Sometimes the financially optimal decision isn't retirement savings...but that depends completely on your goals.
And Let's Talk About the Hot Topic Lately: How Much House Can I Afford in This Market With These Interest Rates?
A mortgage lender can tell you what payment you qualify for. But there is a huge difference between “We can afford the mortgage” and “We can afford this house while still living the life we want.”
The second question is much more important.
Your financial plan should account for all of your highest-priority goals—childcare, travel, hobbies, home maintenance, giving, saving, investing, and the occasional unexpected expense.
The goal is to build a life you can afford—with a plan that can adapt to your life changes and the unavoidable changes in the economy and stock markets.
This is where financial planning becomes especially valuable.
Your investment strategy shouldn't exist separately from your tax strategy.
Your tax strategy shouldn't exist separately from your retirement plan.
Your retirement plan shouldn't exist separately from your cash flow.
And your cash flow shouldn't exist separately from the life you're trying to create.
Everything is connected.
That's why I don't think your financial plan should be a collection of separate accounts, decisions, and to-do lists.
It should be a system. And you shouldn't have to figure out that system entirely on your own.
Also...you don't need to make the perfect financial decision every time. You need a financial plan that makes good financial decisions easier.
One that guides you on how to prioritize.
One that incorporates taxes over your entire lifetime—not just at tax time.
One that connects your investments to your goals.
And one that gives you permission to spend the money you've intentionally set aside for living!
Because the goal of financial planning isn't to make every financial decision perfectly; it's to make sure your dollars are working together to build the life you actually want.
That's the difference between simply managing money and having a financial plan.
And sometimes, the best financial decision isn't the one that looks best on paper. It's the one that makes the most sense for your life.
Working with a financial advisor does not guarantee investment performance or the achievement of financial goals. Investing involves risk, including possible loss of principal. Advisory services, strategies, fees, and potential conflicts of interest should be considered before engaging an advisor.
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Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Fiduciary Financial Advisors does not give legal or tax advice. The information contained does not constitute a solicitation or offer to buy or sell any security and does not purport to be a complete statement of all material facts relating to the strategies and services mentioned.
