John Maher: Hi, I’m John Maher. Today, I’m here with Rick McDonald, President of the US Advisory Group – a private financial management company in Massachusetts. Today, we’re talking about “Creating a Financial Game Plan Before You Start to Play”. Welcome, Rick.
Rick McDonald: Hi, John. How are you?
John Maher: Good, thanks. How are you doing today?
Rick McDonald: Good, thanks.
What is a financial game plan?
John Maher: So, Rick, what is a financial game plan?
Rick McDonald: It’s a great question. We talk all the time about financial planning. I wonder what that means. I know that it means lots of different things for lots of different people, so is financial advisors to individuals and families.
We talk about building a financial plan, a financial road map. What a road map to us looks like is depicting your life – life events, goals, objectives, things that matter most to you. So the question obviously begets itself. How do you create one?
How do you create a financial game plan?
We are very, very firm believers in the fact that it all begins with who you are and what’s important to you. What matters most to you. See, most people think financial planning is about money, and it really isn’t. It’s not about money, it’s about who you are, what you are, what you’re trying to do. Money only supports the things that are important to you.
John Maher: Right.
Rick McDonald: It, by itself, is not what’s important. So the questions are who are you and what are you? What are you trying to get accomplished in life? And why are you trying to get these things accomplished?
In other words, why the things that you think matter to you matter? And gaining a better understanding of that is going to give you a much greater understanding of the goals, the purpose of the goals, and the feeling of accomplishment when those goals, in fact, are executed properly.
John Maher: Okay.
Rick McDonald: So, if we have a conversation and better understanding of the whos, the whats, the whys, the wheres, and whens, then we can turn around and map out what the various events are that are important to you.
Mind you, I’m not talking about money yet. What are the events? Another home – a second home, college education for kids, college education for grand kids, retirement in general. That’s another misnomer because most people have this one size fits all sense of what retirement should look like and be. It’s how much money do I have at age 65, and what that means to us for our lifestyle. And that’s why most Americans, unfortunately because it’s the truth, will not spend their money well inside their life expectancy.
They’re just not saving enough money. They don’t know when to retire. They don’t have a clue what it is to retire with what they’re receiving and it’s just is a train wreck.
John Maher: Okay.
Rick McDonald: So, anyway, let’s get back to our finan — Think of a game strategy. We’re playing a loop, we develop a road map. We frankly pick a picture more than we start developing a road map, what are the various goals along the pathway, when are they showing up, how many years out that they’re likely to occur. And then, we can turn around and start saying, ‘Okay, what resources are going to be needed to support those goals?’ And resources are more than just money. It’s familial. It’s spiritual. It’s educational, intellectual. It’s monetary.
So what do we need to do to have things in place is to support the goals that matter most to us? And how do we execute a plan to bring those to bear when they need to be brought to bear? And sometimes, we have plenty of money, to the extent that money is a part of that structure. Sometimes, we don’t.
So what do we need to do to either earn more money, save more money, accumulate more money to make sure the goal is supported, and ultimately, maybe weâ€™re stressing out the objective with the monetary nature. And we need to postpone the goal or alter the goal altogether. Maybe it means we’ve retired a little longer, a little later than we thought. Maybe we retire with less money than we thought. Maybe we’d downsize the home. Homes are very, very often, a very large asset.
Now, we have mechanical data and criteria to start to formulate a plan – a financial plan. And then, we come back into the executables of it.
Executing Your Financial Game Plan
John Maher: Right. So how does that process work? Once you’ve decided on what your goals are, you’ve come up with a plan, how do you go ahead and execute it and start making it happen?
Rick McDonald: That’s a really good question. So now, we basically have the architectural drawings of the plan.
John Maher: Right.
Rick McDonald: Now, we need to get in a collaborative fashion the accountant, the attorney, the money manager, the various insurance persons. All of those different skill sets. Whether it’s your advisor has those, or whether you collaboratively bring together the team and say, ‘Okay, what legal vehicles do we need? What structure that we need that have to be created or exist for the various goals to show up? What financial portfolios need to be created to support each individual goal?’ That is one large pot of money grown for generic benchmark growth.
John Maher: Right.
Rick McDonald: But specifically, how much money needs to be allocated to each goal, and what investment characteristics need that portfolio to have to support that goal, attain the goal, and maintain the goal?
Insurance comes into play with regard to making sure that if you’re short, that you have the wherewithal in case, calamity, unexpected events, whatever it may be, occur, whether it’s life insurance or disability insurance, or what not, care insurance, you’re going to measure the pros and cons, the cost-benefits of each of those kinds of things and put them in place of their appropriate.
And then, you have to be obviously mindful of tax mitigation where taxes are a big implications to most people’s financial longer term plans. And they’re growing – income tax, capital gain tax, estate transfer tax. All of these need to be factored into the game plan.
So we put together the executables, then we manage the portfolios, we look at the — because life gets in the way. Once we have this wonderful plan in place, [unintelligible] life gets in the way.
John Maher: Right.
Rick McDonald: The unexpecteds occur. Markets donâ€™t know which work the way they’re supposed to. Life events are unpredictable. These are the variables that have to be factored in, so that we manage to a process, and manage to an event, goal by goal, by goal, so you’re on top of things.
You’re not living by default. Default by itself is the fault. And no one I’ve ever met was pleased with the fault. What they wanted on their terms, not what was going to happen by coincidence.
John Maher: Right, right.
Rick McDonald: So this is the financial plan – the process of true financial planning. We call it ‘building a financial road map.’
John Maher: All right. Well, Rick, thanks very much for speaking with me.
Rick McDonald: Thank you for having me.
Photo credit: Will Folsom / Foter / Creative Commons Attribution 2.0 Generic (CC BY 2.0)