Improving the Planning Process

As mentioned in our July monthly letter, our financial planning software released a new version this week full of exciting updates.  New functionality will improve our planning process by better integrating certain variables and placing a better framework around how we segment goals.  We think it’s a big step forward in The Asset Advisory Group’s mission to enhance our clients’ well-being and help them make smart decisions about money.

From a technology standpoint, the software will now address things such as Social Security not just on it’s own, but really look at how different distribution scenarios impact the overall portfolio.  These are certainly things we’ve evaluated in the past, but having them fully integrated into our planning tool will really help frame the impact and outcomes of various decisions.

When evaluating goals, we will now segment around needs, wants and wishes.  This isn’t a major shift, but an important one.  In the past, the Monte Carlo analysis would put all goals in one pot and then determine a probability of achieving success.  While useful, providing more sound footing around needs like food, water and shelter typically take precedence over travelling first class around the globe.  Going forward, we will be able to segment these three goal categories, putting an emphasis on making sure needs are met, which then allows for more meaningful conversations around how to prioritize the risk needed to meet the wants and wishes. 

For many clients, this will mean revisiting some of the “discovery” phase of our relationship.  The purpose of this is not redundancy, but to ensure that our existing clients go through the same detailed process in defining their goals that a new client would experience.  At the same time, we’re making sure we’re using the most up to date information available from our clients and that we are asking questions specifically designed to maximize the potential of the updated process.

We continue to be committed to creating customized experiences for our clients based on their individual wishes for a financial planning relationship.  Making an investment in the right technologies continues to be an important way of executing on this commitment and in working together to make smart decisions around mitigating tax issues, taking care of heirs and building, protecting and distributing wealth.

Have a great week!

Chip Workman, CFP®

cworkman@taaginc.com
www.taaginc.com

The Struggle to Define What We Truly Need

(from Carl Richard's New York Times' Bucks blog, 10/17/2011 - click here for the original post. Carl is a Certified Financial Planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.)

There seems to be a constant battle between what we have, what we need and what we think we want.
About a year after my wife and I had our first child, we moved into a neighborhood with homes built decades earlier. Each had two or three bedrooms. We soon noticed that when people had a third or fourth child they moved from the neighborhood in search of more space. One day I mentioned this to my next-door neighbor, who was 70 at the time, and he expressed surprise.

He and his wife had raised their five kids in one of the smallest homes on the block.

One of the most challenging personal finance issues we all face is the ever-expanding definition of “need.” Things we once considered clear luxuries have somehow becomes necessities, often without any consideration of how the change in status happened.

Cars that seemed just fine now seem old fashioned. Then there are children and their cellphones. Only a few years ago it would’ve seemed outlandish for 14-year-olds to need one at all, let alone the latest iPhone.

Achieving clarity about the difference between our needs and wants remains one of the biggest challenges in personal finance and a tremendous source of potential conflict within families. While simple in theory, the calculation is much more complex in practice.

One of the most discouraging parts of modern life seems to be this never-ending sense that we should want more. While this may not be true for everyone, it does seem like it’s become more difficult to be content with what we have. Whether it’s the media, our friends or even our family, it can be a challenge to separate real needs from wants. So here are a few of things to think about:

• What if financial happiness is not about getting more but about wanting less?
• What if things start out as wants and become needs not because the thing itself has changed but because our feelings about it have changed?
• What if you can never really get enough of something that you don’t need?

From personal experience, I know that the shiny new toy I just had to have often ends up in a pile of things that I eventually need to sell on eBay. I’m not the only one that’s fighting this battle. It’s yet another example of why personal finance can be so complex. Because there’s no definitive list of the 100 things that every family must have, these end up being very personal decisions

I’ve talked about some of the ways I’ve seen people look for balance between wants and needs. They include things like sleeping on a decision overnight. My personal rule is that before I buy a book, it has to sit in my Amazon shopping cart for five days.

What have you done to help better define the difference between a want and need? And how have you focused more on being content with what you have instead of always striving for what you think you want?