As financial planners, we can easily get caught up in the numbers, projections and our planning software. But the real value of financial planning goes beyond the analysis and the software we use. The real value is in helping families prepare to reach their ideal lives while also being prepared for all the unexpected things life can throw their way.
This past year, I personally experienced the value of financial planning within my own family’s journey. We witnessed just how fast life can change and why it’s so important to not only have a financial plan but one that’s strong enough to handle the good and bad.
Let me bring you up to speed:
My wife and I started 2024 by accomplishing a big piece of our personal financial plan. Shortly after the new year, we purchased an RV with plans to work and travel around out west. We love the outdoors and have had plenty of adventures over the years. For quite some time, we had talked about getting an RV to be able to do longer trips. Butwe kept kicking this down the road, thinking if we could save a little more that would be perfect! Then we realized we were exactly where we needed to be in our lives to fully enjoy this.So, as a financial planner, I updated our plan and we moved forward.
Our plan was to spend a portion of that upcoming summer working and exploring Montana and Wyoming. Then, less than three months later, we found out we were expecting our first child!
Best Laid Plans
As we began to adjust our plan a second time and prepare for a new member of the family, an abnormal prenatal genetic test revealed some sort of maternal medical issue was likely going on. My wife spent much of 2024 going through procedures and tests to figure out was this was, if anything. Then in October, she received an unexpected cancer diagnosis – Stage 4 Hodgkin lymphoma. All with no signs or symptoms. Roughly one month later, we welcomed our happy, healthy daughter. Shortly after, my wife began treatment for her cancer.
Planning for welcomed, significant life events, like our child and our RV purchase, was exciting but required careful updates to our financial plan. These things came with challenges, too, but we had time to think through the best way to approach them financially. But as we learned with the medical diagnosis, life can throw a wrench in even the best plans, leaving little time to prepare. All of this has been a big reminder that the future is uncertain and it’s so important to be flexible:We need to be prepared for the good and bad.
Liquidity and Flexibility Dominate
One of the biggest takeaways from our experience last year was the importance of liquidity within a plan. Our emergency fund provided us with a tremendous amount of flexibility and we relied heavily on it for all the new and irregular expenses we hadn’t experienced before. This included finding out we were expecting a baby, and navigating doctor appointments, procedures, ongoing treatment, etc.
Our household saving strategy was another source of flexibility within our plan. Many decisions we made in our personal plan in prior years may not have been the most “efficient” from a planning perspective, but they provided us with the flexibility and breathing room to navigate last year.
One example was our decision to allocate a greater portion of our cash flow to our taxable brokerage account, knowing we wanted more flexibility in how we planned to live our lives going forward. Having unrestricted access to our money in a brokerage account — unlike the money in our retirement accunts — allowed us to tackle the RV purchase without affecting our ability to meet what was to come later that same year. It’s hard to quantify the mental and emotional benefits of the flexibility within our own plan.
Healthcare and Insurance Take a Front Seat, Too
Beyond our financial plan, we also spent considerable time last year navigating healthcare and insurance. This is definitely an area that I aim to spend much more time with clients going forward.
We have always used a high-deductible health plan in conjunction with a health savings account (HSA). This time I had to ensure we were prepared to meet our high-deductible plan’s out-of-pocket-maximum and our regular ongoing premiums, in addition to all the normal new baby expenses. Even considering my wife’s cancer diagnosis, we still plan to use the high-deductible plan going forward. It just made sense financially when we examined the premiums, coverages, out-of-pocket-maximum, etc., of all the health plans available through her employer.
Our journey has reminded me that the optimal emergency fund likely needs to consider more than a family’s normal expenses, which is the standard rule of thums. The real questions: Beyond a loss of income, how would a family address large unforeseen (possibly ongoing) medical expenses, home/auto losses, etc.?
I also spent quite a bit of time reviewing our insurance company’s explanation of benefits (EOB) for each medical service and I requested itemized bills from the mecical providers to make sure all charges and services were billed correctly. This is another area where advisors can provide considerable value to clients avigating ongoing medical care.
These EOBs and itemized bills can also help us advisors forecast and plan future medical expenses for clients. Going frward, I intend to discuss this submect in more depth with my clients. On a personal level, this analysis has helped us more accurately anticipate our ongoing cash flow needs.
The True Meaning of Financial Planning
Everything my wife and I faced last year (and continue to face) has been a huge reminder that financial planning is not a one-time event. What worked for us at the start of the 2024, with our goal of traveling in our RV, looked different after we learned we were expecting our first child —, and then was vastly different again after my wife’s diagnosis.
I reran our financial plan countless times throughout the year to evaluate everything that was happening in our lives. In addition, we immediately opened a 529 plan account for our daughter and are making regular contributions to fully take advantage of our state’s tax credit. I had to consider the impacts of all these changes and what it would look like to reduce or stop our planned contributions should the need arise.
Financial planning isn’t about predicting the future; it’s about getting closer to your ideal life while being flexible enough to handle any bumps along the way. For my family, having a flexible plan allowed us to get through significant life changes without any added financial stress.
Cody Lachner, CFP®, EA, is the owner of Next Adventure Financial, a fee-only firm located in Lafayette, Ind., providing retirement planning and investment management services to retirees, pre-retirees and outdoor enthusiasts.