The Frontier of Financial Planning
Live your best financial life
Friends, we are on the cusp of knowledge seeping into your lives. Yoga for your financial core. A few days ago, a CFP wrote, “I haven’t heard the term economics-based financial planning before.” The CFP wanted to learn more. Curiosity and a willingness to learn put this planner on my A-list.
Thousands of CFPs have been trained in numerous ways, and now we have a way to have earnest CFPs become better planners and help their clients achieve better outcomes. But how? After all, if I am a CFP and trying to run a business, then I am in sales mode. Assets under management, headcount, and continual prospecting are my life. Absent is much of a call for more learning except in the technical, tedious aspects of 30 hours of continuing education every two years. But there are new educational pathways and new content; my Substack site is one of them, which, over time, will help lead planning innovation.
As a subscriber, you know I am committed to the importance of economics-based financial planning. If you work with an advisor who is there mostly for guidance about investments, have your advisor sharpen their pencils for every financial planning decision you confront. We hope investment advice works in our favor because our living standard is at risk. Our living standard is at stake when we make poor financial decisions—selecting social security retirement benefits too soon and abusing our credit cards are examples. Further, we ignore our credit score and do not shop the loan market when we buy a car or home.
Messy financial decisions go away with standard principles that can be quickly followed once learned. Advisors and planners can bring economic principles to their clients, and their clients can do it for themselves. When that friendly CFP wrote me, I knew I had a fresh opportunity to share knowledge not yet tested in the CFP exam. Indeed, it is a time when the academy can prove helpful as a leader!
When I joined Substack my intent was to make principled personal finance accessible, not just stuck in the platform of our university.
If you have been with me since the beginning or spent time in our archive, you will notice consistency in the analysis and the solutions to real-world personal finance questions. It is not me. It is the content.
Shouldn’t it be that way? We all have one-off personal finance questions, some of greater magnitude to our well-being than others, but the core generation of the solution should never vary. Household subscribers, bear with me as I pitch to the financial planners that they can learn the fundamentals of economics-based financial planning from my book with Aaron Stevens.
Even a Budget is Complicated
Consider the question of how to establish a budget. For most people, a budget is how much to spend in a month, but how should that really be determined? Getting to a solution is astonishingly complex. A rule-of-thumb solution is unlikely to be the best choice. Individuals start with different amounts in checking, savings, and other financial asset accounts, and many have pre-commitments to pay off loans. Individuals have different lifespans and prospects, preferences for work v. leisure, the expectation of an inheritance, whether to leave a bequest to family, the desire to give charitably during life and at death, and where they live. Budget solutions turn on taxation, inflation expectations, the flexibility to move, and risk-return uncertainties of investment choices. Complex indeed. No wonder brief rules of thumb make good copy. I’ve pleaded with the Wall Street Journal’s Julia Carpenter to help.1
Financial decisions alter lives and living standards. Notably, the concept of “living standard” hints at the outcome of the adequate personal finance budget amount. The highest living standard by definition for an individual (or household) is the highest level of sustainable spending achievable while considering all the economic inputs, prospects, aspirations, and institutional factors.
For Substack Subscribers
Let’s come back to the book. Yes, it is a digital textbook, and as a subscriber, I offer the first chapter to you here adjacent to the “Frontier of Financial Planning” row header under February 2023. Download and take a look. See if you find it helpful.
If you support my work here on Substack and become a paid subscriber, I will send the complete digital text to your subscribing email, and you will be added to our “learn together” series and have full access to the archives and scheduled live chat.
Come along for the journey as a paid subscriber to Personal Finance Economics. It will be your best economic decision today :)