The process of comfort-based financial planning

Here is the process I use in comfort-based financial planning.

Initial consultation/philosophy

During the initial consultation, my goal is to determine what overall situation is best for a client going forward.

All clients need to fully understand the upside and downside of their plan in addition to any costs involved.

Clients are like family, and my goal is to provide support, direction and guidance that will allow them to pursue happiness in their lives.

1. Creating a Wealth Plan

Part of the initial consultation includes a customized Wealth Plan that:

•Outlines their expectations of comfort, financial needs and return.

•Organizes their financial structure.

•Reflects monthly expenses and impact of inflation.

•Plans larger future expenditures.

•Lists “outside-the-box” ideas that require money.

•Identifies financial issues that may be of concern, directly or indirectly.

•Projects cash flow (income sources).

•Has the capability to “stress test” unknown variables (nursing Home, investment performance, etc.)

•Allows variables (return, expenses, savings, retirement age, etc.) to see the impact on the plan.

•Provides an ongoing “financial health score” at any given moment that reflects the probability of success in meeting all goals, both small and large.

2. Allocating your financial ‘ship’

It is critical that your portfolio is properly allocated in a way to satisfy your long-term financial needs and returns. BUT your financial ship must be built in a manner that does not allow waves to impact your overall comfort while it is at sea.

There is a trade-off between a slow-moving, stable ship and one that is faster but does not provide as much comfort in stormy seas.

Everyone’s comfort is relative, and it is important to know ahead of time what is considered acceptable in terms of how “rough” your ride could possibly be while out in the sea.

Understanding the upside potential is important, but it is more important to know the potential downside in your account value during uncertain times.

To get a feel for these extremes, focus on the actual dollar amounts that relate to your account, not just the percentages. Visualizing the drop on your statement in dollars will typically reflect a more “painful” and realistic experience than using a hypothetical percentage.

It is never enjoyable when storms hit, but if you have already prepared yourself with an expectation, it will lessen the emotion. Surprises are much more challenging to deal with.

These questions need to be answered before leaving the port. It is not prudent to rebuild your ship while at sea when a higher level of emotion is present and doing this can sometimes alter the long-term success of your plan.

Being realistic and honest with your expectations in the “building” stage will alleviate anxiety during the uncertain times when they do occur.

The priority for your journey is to balance your comfort with a return that satisfies your needs.

3. Encouraging the use of your money

Since an interactive plan can easily show the impact of expenditures on your financial health score, it allows me to encourage clients to pursue “outside-the-box” ideas on how to use their money in ways that can have a positive impact on the important things in their life.

This can mean early retirement, trips, new experiences, conveniences or gifts to charity or family. By understanding the impact of monthly expenses and other expenditures on your overall plan, it allows more comfort and confidence in using your money toward goals that are important to you.

Tying it all together: net worth puzzle

When helping clients make financial decisions, I attempt to view their net worth and happiness as a large puzzle with many moving pieces.

Although many financial decisions are able to be measured as a numerical value, they are often just one piece of the client’s overall well-being.

My goal is to open up the possibilities of how you can use your money today so it provides you the greatest positive impact in your life. Your net worth is measurable while your happiness is more challenging to quantify.

A customized Wealth Plan will help you fit these two pieces together and evaluate the true impact of your long-term net worth and happiness.

Understanding the trade-offs that come with these decisions that can make a difference in your life or others is challenging, but can be very gratifying and enjoyable at the same time.

Pete Alepra is managing director-financial adviser with RBC Wealth Management. Comments: (319) 368-7023; peter.alepra@rbc.com. Investment and insurance products offered through RBC are not insured by the FDIC or any federal agency, are not deposits or guaranteed by a bank and are subject to investment risks.