1. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company1 Financial Goals – Current Lifestyle Clients often have trouble reconciling their long-term goals with their current lifestyle. There is no right or wrong answer to this dilemma, but the financial planner must help the client understand the consequences of current decisions. Quantification of long-term goals is key to understanding.

2. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company2 Answering the Current Lifestyle Question Most clients do not have enough income or resources to meet all their goals. Determining how important their current lifestyle is to them is an important part of Step 1 of the Financial Planning Process. A pie chart with allocation to various goals is an excellent tool for communication with the client.

3. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company3 Assigning Priorities 1.Current lifestyle 2.Children’s Education 3.Retirement funding 4.Parental issues 5.Estate Planning 6.Other special needs

4. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company4 Resource Allocation This chart shows one way that a client might choose to allocate resources. It is not unusual to see clients who are devoting 90 percent of their resources to current lifestyle and almost nothing to long term goals such as Retirement, Education or Estate Planning. For many people, retirement and estate matters do not seem real to them until they are in their 50s.

5. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company5 Expense Allocation In All Your Worth, Elizabeth Warren and Amelia Warren Tyagi state that people should allocate only 50% of their income to necessities, 20% to savings, and 30% to discretionary spending.* * Budget for Real Life. By: Lehoczky, Etelka. Money, Aug2005, Vol. 34 Issue 8, p48A

6. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company6 Determining Factors in Resource Allocation Available Resources: People who have less income allocate more to necessities Personal Preference: –Is a 3,000 square foot house a necessity or a luxury? –Would you rather spend time preparing food at home or eat out frequently and have more money for education? Non-financial factors

7. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company7 Non-financial Factors Affecting Resource Allocation Cultural Background: –$100,000 wedding or $1,000 wedding? –New car every two years or drive car until it is dead? Family experiences: –Children of people who “lost everything.” –Children of people who have always had great wealth. Emotional and medical issues. Life cycle stage and age. Education, expertise and personal experience.

8. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company8 A Football Perspective on Money “There are 5 good reasons to spend money: on necessities, on investments, on self improvement, on memories, and to impress your friends.” Aaron Brown, former defensive end for the Kansas City Chiefs and now an office furniture salesman in Minneapolis, 1984

9. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company9 Smart People Can Make Bad Choices Dan Moisand, CFP wrote in the April 2000 Financial Planning Magazine “Effective Financial Planning in the Presence of Judgmental Heuristics” that several factors affect judgment: –Mental Accounting. –Not Real Money. –Confirmation Bias. http://www.fpanet.org/journal/articles/2000_Issues/jfp0400-art15.cfm

10. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company10 Little Things Mean a Lot Most people underestimate the impact of expenditures now on future income and resources For example, passing up a breakfast at a national coffee chain (not spending $6 per day) can amount to $84,672 over 20 years (at 6% return on investment). For an interesting article about the lack of understanding of the impact of current choices on retirement, see Boomers’ Lack of Basic Investment Knowledge Can Be Major Obstacle to Retirement Planning at https://www.oppenheimerfunds.com/targetedCopy/InvestorPages/ companyNews/company_news.jhtml;sessionid=KS35U3LCEY34HLARENVCFEQ#boomerslack

11. Financial Goals – Current Lifestyle Chapter 9 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company11 Conclusion The client makes the decision about what is important to the client. The planner’s job is to hold up a mirror and show the client the consequences of his or her decisions. If the client is unhappy with the consequences, then the planner can advise on ways to improve the outcome.