123: The Essentials of Financial Planning: A Comprehensive vs Modular Approach

[00:00:00] Intro: Do you think money takes up more life space than it should? On this show, we discuss with and share stories from artists, authors, entrepreneurs, and advisors about how they mindfully minimize the time and energies. Spent thinking about money. Join your host, Jonathan DeYoe, and learn how to put money in its place and get more out of life.

[00:00:33] Jonathan DeYoe: Hey there and welcome back to The Mindful Money Podcast, where we mindfully simplify the world of personal finance and place money and investing into the greater context of a life well lived. I’ve, I interviewed a lot of people, great people in the last few years because I want to help you make informed decisions to secure your own financial future.

I am your host, Jonathan DeYoe. And for the next 10 conversations, I’m gonna do something a little bit different. I’m [00:01:00] gonna introduce the Mindful Money Podcast audience to comprehensive financial planning’s, misunderstood little brother, modular financial planning. First, we’re gonna explore why starting your financial journey with a solid plan is so important.

And today we’re gonna compare and contrast the two. Popular approaches to financial planning. The first is the comprehensive financial plan, and the second is , simpler modular plan. And over the next nine conversations, I’m gonna go step by step through the modular financial planning process.

As you know, I like to keep it simple. So by the end of this episode, I hope you’re gonna have a clearer understanding of whether you need the depth of a comprehensive financial plan, which tends to mean hiring. And paying someone for financial planning or advice, or whether you might be able to start with a simple modular approach, you can implement yourself.

So let’s get into it here. Let’s start by talking about why having a financial plan is essential. Imagine setting off [00:02:00] on a long journey without a map or a GPS, you might have a general sense of where you want to go, but without clear directions, reserved flights, and maybe train schedules. It’s easy to get lost.

It’s easy to miss opportunities or take unnecessary detours. The same is true for your financial journey. Without a financial plan, you’re navigating your finances blindly, hoping to reach a bunch of goals, but without a clear path to follow from my deepest heart. Every successful investor I have ever known was operating.

From a financial plan, and the flip side is also true. Every failed investor I have ever known wasn’t. Instead they were focused on their portfolio decisions. Another way to say this, which we’re gonna come back to, is all successful investing is goal focused and planning driven. All failed investing is market focused and performance driven.

A financial plan acts as a roadmap. [00:03:00] It provides a structured approach to managing your money, helping you make informed decisions and stay on course. But more than that, it lays the foundation for financial stability. When you take the time to assess your current financial situation, looking at your income, your expenses, your assets, and your liabilities, you get a clear understanding of where you stand.

This clarity is crucial ’cause it allows you to create a realistic budget that aligns with your lifestyle and priorities. And let’s not forget about the unexpected. Life has a way of throwing us curve balls, whether it’s a medical emergency, a job loss, or an unexpected home repair. A financial plan ensures that.

You’re prepared for these surprises by recommending the right kinds of, , insurance and helping you build the right size emergency fund for your situation. These safety nets are your first line of defense against financial instability, protecting you and your family from the stress and hardship that often [00:04:00] accompany unexpected expenses.

One of my favorite. Financial industry coaches, , Nick Murray, you’ve heard me quote him before, has defined financial planning as the following. When we do financial planning, we ensure against what can go wrong in order to acquire the luxury of investing for what can go right, but the benefits of financial plan go beyond just stability.

One of the biggest advantages of having a plan is the ability to set and achieve your long-term financial goals. I. Whether you’re dreaming of buying a home, sending your kids to college, retiring comfortably, or leaving a legacy that lasts generations.

A financial plan provides the roadmap to get there. It breaks down these large, often intimidating goals into manageable steps, making it easier to track your progress and stay motivated along the path. A financial plan also helps you optimize your investments and your savings. With a clear understanding of your risk [00:05:00] tolerance, your time horizon, and your financial goals, you can make more informed decisions about where to invest your money.

This strategic approach helps you appropriately balance, risk and return in your portfolio. So. A, you know, your money is working hard for you over time, and B, you are never in a position to panic out of your perfectly well diversified and stress tested portfolio. And let’s not overlook the importance of managing debt.

A financial plan helps you prioritize high interest debt and create a structured repayment plan over time. This approach leads to improved credit scores, lower interest rates on future loans, and ultimately greater financial freedom. while the financial benefits of a plan are clear, there is also significant psychological components to consider.

Life is expensive. Money is a difficult topic, and to our detriment, we have financialized everything in our lives. One of the [00:06:00] original goals of the Mindful Money Podcast was to normalize this money conversation and allow us to de financialize our lives, to some extent, put our money in the context of our lives.

So financial stress is one of the leading causes of anxiety and depression affecting both individuals and relationships. Without a plan, the uncertainty about your financial future can be overwhelming, leading to poor decisions and a cycle of stress and regret. Okay. Having a financial plan in place can yield better financial results, but it can also give you peace of mind.

You gain a sense of control over your future, reducing anxiety, and allowing you to focus on other important aspects of your life. Knowing that you have a plan to achieve your goals and handle unexpected challenges brings a sense of security and confidence that cannot be overstated. So what do you do if you don’t have a plan or have never even considered financial planning as a key component of your lifetime financial success strategy?

What if you want a financial plan? You can [00:07:00] start by considering that there are two different approaches to creating a plan.

You could build a comprehensive financial plan, or you could begin to understand the overall step-by-step process. Figure out where you are in the process and just work on the next right decision.

We refer to this latter, simpler planning method as a modular financial plan. So I’m gonna start by describing comprehensive financial planning, and this approach is all about depth and detail. A comprehensive financial plan is a thorough. All encompassing strategy that covers every aspect of your financial life.

It looks at your income, your expenses, your investments, your insurance, your taxes, your estate planning, your retirement, planning the whole nine yards. It looks at everything and integrates everything into a lifetime of expected cash flows, and it is extremely powerful tool for decision making.

The primary advantage of a comprehensive financial plan is that it leaves no stone unturned. It provides a holistic view of your [00:08:00] financial situation, offering you detailed projections and analysis to help you prepare for all kinds of different life scenarios. For example, a comprehensive plan might include strategies for minimizing your taxes, optimizing your investments, protecting your assets with the right insurance, and planning for your estate.

This level of detail can be particularly beneficial for individuals with very complex financial situations and those who have multiple financial goals they want to achieve simultaneously. Because a comprehensive financial plan is tailored to your unique situations, it takes account, , your specific goals, your risk tolerance, and life circumstances.

It results in a very highly personalized roadmap. However, this depth can also be a drawback for some people. Creating a comprehensive financial plan requires a huge time commitment, both in terms of gathering necessary information, analyzing that information, and working with the financial advisor to [00:09:00] develop an implement the plan.

Additionally. Because of its thoroughness. A comprehensive plan can be overwhelming, it can be too much. I’ve seen a hundred page financial plans, , delivered to clients. It can be too much, especially for those who are new to financial planning or who prefer a more straightforward approach. In such cases, the modular financial plan might be a better option.

This approach is simpler and more focused, making it an attractive option for people. So instead of addressing. Every aspect of your financial life at once. A modular plan breaks down the process into smaller, more manageable steps. The idea is to assess your current situation, help you make the next right decision, while also pointing out a couple areas where you might wanna consider some thought.

The simplicity and flexibility of a modular financial plan. Are its greatest strengths. It allows you to focus on one financial aspect at a time, making it easier to understand and act upon. For instance, a modular [00:10:00] plan might start with budgeting and debt management and then move on to saving and investing, maybe followed by some insurance and some retirement planning.

The step-by-step approach can be less intimidating and more accessible, especially for individuals who are just starting out on their financial planning journey. Or those who have sort of limited time and resources to devote to planning. Another benefit of modular plan is adaptability. Life is unpredictable and your financial needs and goals can change over time.

A modular plan allows you to adjust your focus sort of on the fly as your situation evolves, ensuring that your plan remains relevant and aligned with your current priorities. The flexibility can be particularly useful for younger individuals who may be at the beginning and face significant life changes, marriage, buying their first home, starting a family, starting a business, these kinds of things.

This all being said, the primary limitation of a modular financial plan is that it may not provide the same level of detail or long-term vision [00:11:00] as a comprehensive plan because it focuses on individual aspects of your finances rather than the big picture. There’s a risk of overlooking important connections between different financial areas of your life.

For example, without considering tax implications, decisions made in one area might inadvertently affect another area of your financial life.

So which is right for you? The choice between a comprehensive financial plan and a modular financial plan ultimately depends on your personal preferences, your current financial situation, and your goals.

If you already have established wealth. Have some financial complexity and prefer a detailed all encompassing strategy, then a comprehensive financial plan may be your best option. Research from Vanguard, Morningstar, and a host of academic institutions suggest the benefits of comprehensive financial planning in terms of asset returns, tax savings, simplification, , better decision making, and simply a belief in your future.

If done [00:12:00] correctly are worth well more than the fees most financial advisors charge. If you’re curious about what this might mean for you, let me know. I’d be happy to help you find a great financial planner, a great financial advisor that you can work with. Just reach out via, reach out, button@mindful.money.

On the other hand, if you’re just getting started or you value simplicity, flexibility, and a more incremental approach, a modular financial plan could be a better fit. This method is ideal if you have a fairly straightforward financial situation or prefer to focus on one aspect of your finances at a time.

In the remaining time of this episode, I’m gonna introduce modular financial planning.

Our process, sort of a step-by-step approach that’s designed to help you make thoughtful, informed decisions at each stage of your financial journey. , we’re also kicking off a series of nine episodes, that will dive deeper into each step of this process, giving you the tools and insights you need to build a financial life that [00:13:00] truly supports the way you want to live.

When we talk about financial planning, the conversation often starts with tactics, budgeting, saving, investing. Here’s the thing, the first step in any financial plan is not what you might think. Before we get into the dollars and cents, we’ve gotta ask ourselves, what’s worth seeking? , this can’t be just about accumulating wealth for the sake of it.

It’s about aligning your financial decisions with the things that truly matter in your life. Mindful Money’s modular plan begins with understanding your values and priorities. What brings you joy? What gives your life meaning? This is where your financial journey should start with this kind of clarity.

Every financial decision you make can support the life you truly want to live. I. Once we know what’s worth seeking, we can begin to develop your vision of a perfect life. This isn’t a daydream, it’s a strategic [00:14:00] step in your financial planning. Imagine the life you want. Where do you wanna live? How do you wanna spend your time?

Who do you want to surround yourself with? Your vision serves as a North star for all your financial decision making, ensuring , you’re not just. Saving for some nebulous future, but you’re saving and building for a life that feels rich and fulfilling. Next, we move into the practical steps, starting with adopting a savings habit.

Consistent, mindful saving is the foundation of financial security. Full stop period. It’s about more than just putting money aside. It’s about cultivating a mindset. That values future stability over immediate gratification. This habit will serve you well as you build your financial life, helping you create a buffer against life’s uncertainties, then we build your emergency fund.

Life is unpredictable. An emergency fund provides peace of mind knowing you have the resources to [00:15:00] handle whatever life throws at you. It’s not just a financial cushion. It’s a living, breathing source of resilience that allows you to navigate life’s challenges with confidence. We eliminate high interest debt.

High interest debt is like a ball and chain on your financial progress. By paying off this debt, you free yourself to pursue other goals. Without the constant burden of escalating interest payments, then and only then you can focus on the future saving and investing for retirement. This isn’t just about building a nest egg, it’s about ensuring that you can continue living your values and , pursuing your vision of a perfect life, even after you’ve stopped working.

As you make further progress, you’re also gonna want to pay down your low interest debt and start building taxable savings. This is about balancing debt reduction with the opportunity to grow your wealth. By doing both, you’re creating a financial strategy that’s both prudent and growth oriented. We’ll also talk about simple, basic, mindful investing.

This is where we take a disciplined, thoughtful approach to [00:16:00] growing your wealth. We’re not chasing trends or timing the market. Instead, we’re building a diversified portfolio that aligns with your risk tolerance and your long-term goals. Mindful investing is about making proactive decisions that support your financial stability.

And your peace of mind. It’s not about reacting to markets, ups and downs, or economic prognostication. Over the next nine episodes of the Mindful Money Podcast, we’re gonna explore each of these steps in depth. I. I’m gonna guide you through this, , modular financial planning process, giving you practical advice and mindful insights to help you make the best financial decisions for your unique situation.

In each episode we’re gonna take, , a deep dive into one of these steps, beginning with understanding what’s worth seeking and ending with optimizing your investment portfolio. We’re gonna break down the complex concepts into actionable steps that you can. Start implementing right away no matter where you are on your financial journey, whether you’re just starting out or looking to refine your financial strategy.

This series is designed to [00:17:00] help you build a life of financial stability, purpose, and joy. ‘ cause at the end of the day, financial planning isn’t just about growing your wealth. It’s about creating a life that’s rich in all the ways that matter most. I wanna say thank you for joining me today. If you’re ready to take control of your financial future, make sure to tune in to next week’s session where we talk about, knowing what’s worth seeking.

Until then, remember to stop predicting, start planning, and stay mindful.

[00:17:30] Outro: Thanks for listening. Full show notes for each episode, which includes a summary, key takeaways, quotes, and any resources mentioned are available at Mindful Money. Be sure to follow and subscribe wherever you listen to your favorite podcast. And if you’re enjoying the content and getting value from these episodes, please leave us a rating and review at ratethispodcast.com/mindfulmoney. We’ll be sure to read [00:18:00] those out on future episodes.