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Posted: June 01, 2012

Seven essential financial questions: No. 1

They produce a personalized financial plan

Michael Hood

(Editor's note: This is the first of a seven-part series.)

To help with clients, I have created a basic financial planning process using Seven Essential Questions as the foundation. Why only seven? The answer is simple. I have conducted thousands of planning meetings over the past 20 years and have discovered that while most people know they should have a financial plan, they are often overwhelmed by the thought of even starting to create one. It seems like something that will take many hours and be painful or boring. I find that by breaking down the process into answering these Seven Questions, we are able to build a framework for a financial plan that is comprehensive, yet simple enough to implement.

The best feature of this process is that it produces a plan which is personal, unique and can be immediately put to use.

Here are the Seven Essential Questions:
1. Do you have specific financial goals?
2. Do you have a budget that you follow?
3. Do you have an emergency fund?
4. Do you have a system to save money for short-term projects?
5. How much debt do you have and when can you get it paid off?
6. Are you saving enough money to meet your retirement goals?
7. Is your estate planning in order?

The idea of being laser focused on financial planning may seem unrealistic given all the demands in our daily lives. Many pressing things fill our time and financial planning is rarely one of them. If a financial matter does demand our attention, it is often because there is a crisis. One of the main goals of financial planning is to avoid the need for crisis management.

There will never be a better time than today to begin building your personal financial plan. Don’t put it off. Ready? Let’s get started.

Essential Question #1: Do you have specific financial goals?

In his book The Seven Habits of Highly Effective People, Steven Covey says that you should begin with the end in mind. He uses the example of a construction project. The owners consider what type of building they want and then begin the planning process. The actual construction is the last step.

We want to approach financial planning the same way. We need to decide what it is we want to accomplish financially and then put the plan together, with actual saving and investing techniques being the last step. I have found that money accumulated in an account without a plan can easily disappear.

You need to know what you are saving for. Is it so that you can make a down payment for a house in two years, retire in 20 years, or pay for your grandkids’ college? There are no universal answers for why we want to accumulate wealth. Start by determining what the right answers are for you.

Your first assignment is to write down all of your short- and long-term goals. Be sure to list everything that comes to mind. As you work through the planning process you will probably revise your goals a few times. For couples doing this exercise, it will take some extra discussion and compromise.

Once you have your goals written down, you want to reinforce them by clearly thinking about why they are important. Many great coaches have said if you have a strong enough why then the how becomes secondary. The why provides us with the motivation to stay with the plan when the newness and excitement have faded. The why needs an element of both the carrot and the stick. As an example, if I save enough money for retirement, I will be able to live a healthy, happy life in my older years. If I do not save enough, I could be forced to work longer in a job that I don’t necessarily enjoy while my friends are traveling and enjoying their grandkids.

Motivational expert Tony Robbins teaches that putting strong emotional pictures with the why helps give us leverage. Remember the tale of Ebenezer Scrooge in A Christmas Carol? The ghost of Christmas Future tried to get Scrooge to comprehend the regret he would experience in the future if he continued his errant ways. It provided huge motivation because he visualized why he needed to change. In my experience, the stick seems to provide more financial motivation than the carrot. Having goals you are strongly committed to will help keep you motivated, so review them often.

Key concepts:
1. Decide what you want to accomplish with your financial plan.
2. Make your goals specific, realistic, and achievable.
3. Think through why you need to accomplish your goals.

Michael Hood, CIMA®, is a Certified Financial Planner™  and First Vice President of Wealth Management for Morgan Stanley Smith Barney in Denver. He can be reached at 303-925-9648 or Visit his website at

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