In times past, access to financial planners was something for those already well-to-do, with money that needed some direction. Thankfully, with the advent of the internet and the scaling that’s possible, professional financial planning is right at your fingertips for a fraction of the cost.
A financial planner’s job is to gather information from you about your current financial situation and your desired future situation. You take your goals and aspirations and you build a roadmap for how you’ll get there. eFinplan does just that with a straightforward web interface.
Knowing the best way to learn is by doing, I spoke with a co-founder of eFinplan, Kent Irwin, and he let me give the software a test run. Because the software is so straightforward, I’m not going to talk about how to navigate it or anything like that. If you’ve filled out a form online before, then you can use the software. What I’d like to talk about, and the part that got me so excited, was the end product.
When I finished entering my financial information into eFinplan, I was given a 63-page comprehensive financial report. Emphasis on comprehensive. It’s broken down into easily-digestible sections so no need to feel overwhelmed. You can just work through it one bit at a time.
To be clear: the document is in no way an advertisement for anything. My first though was, “Oh, they’ll get this information and then be able to refer people to planners or insurance brokers.” I was dead wrong. The report is a plain vanilla report chock full of information.
Section 1: Present Financial Condition
The first section deals with how things are right now: a statement of net worth and a breakdown of capital assets (between taxable and tax-advantaged funds). An example of a tax-advantaged fund would be a traditional or Roth IRA, or a 401k, among others.
You then work through some basic assumptions (which are adjustable, but I recommend you leave them at the default) such as your life expectancy, expected rate of inflation, expected expenses at retirement and a slew of others. Just stick with the defaults and you’ll be fine 🙂
Section 2: Future Goals
Section Two is where things start getting fun. You work through your future goals (Maui+Golf, just for instance) to see if you’ll be able to fund those goals.
The great thing about eFinplan is that it’s not just a data output (from what you just input). It actually walks you through and explains the what, why and how of the whole plan. That’s where the value really is — in the education.
Continuing on with the goals section, it breaks down each of your retirement years and shows how your cash flow situation might be. If you worked things into your plan like funding college for kids (can you say expensive, hello?!), you’ll see a breakdown of how much you’ll need to contribute to meet goals for each of your kids, how much tuition is expected to be, etc.
As part of the college funding section, they give you a nice, consolidated report on the different funding opportunities available (529, UGMA/UTMA, etc.). It was nice to have all of that presented in one place instead of spending an hour on Google. It even educates you on various tax credits and deductions that make college funding easier.
As part of your future goals, you may have some milestone such as the purchase of a home (that was ours). That will be factored into your situation to make sure you don’t overestimate your retirement nest egg by not considering that hit.
At the end it gave a brief synopsis of my goals to:
- Retire at 40 (13 years away)
- College education for the (now three) kids
- Buy a Home
Section 3: Investments
Section Three is all about your investments. the eFinplan does a great job of teaching you about risk tolerance, diversification, risk vs. return, etc. It’s like having a financial planner teach it to you, but you can refer to this forever without having to pay again 🙂
You’re taught about the various asset classes (large cap, small cap, foreign, bond), selecting the right security (bond, stock, etc.) and timing the market (don’t!). You’re then instructed with great summary information about how different risk tolerance plays to different asset classes and their historical performances.
Section 4: Risk Management
The eFinplan looks at your emergency reserves, property and casualty insurance, life insurance, etc.
The eFinplan gives great advice on cost saving tips for property and casualty insurance and when it comes to life insurance the information simply blew me away. It’s not that the information is secret or anything like that, it’s just that they present the different insurance options (term, universal life, variable universal life, and whole life — as an aside, I recommend term for 99% of people) with a brief descriptions and advantages/disadvantages of each one. Again, the information provided is stellar – it’s a great future reference.
The risk management section continues with disability, and long-term care insurance (again, with great comprehensive information).
Section 5: Your Spending
This is the section where YNAB comes into play as your method of aligning your spending with your values. The eFinplan analyzes your debt-to-income ratio and lets you know where you stand (I’m a fan of no debt), gives you solid advice regarding credit scores, taxes, trusts, health care, etc. The list goes on.
Section 6: Legacy Planning
This is the section where you’re reminded to get a will, a power of attorney, a living will, etc. Vital for anyone that would leave people behind over which you have financial responsibility.
Section 7: Implementation
The eFinplan report then walks you through which advisors you may need, and gives you great advice on how to select them. At the end of section 7 you have a consolidated report of action steps necessary for you to meet your goals.
The nice thing about how the report is organized is that each section has definable action steps that you should take, with a checklist to make sure you don’t miss anything. The eFinplan, for me at least, served as a great reminder of where I am, what I want to accomplish, and how I can get there. In comparison to the cost of a financial planner, it’s an absolute bargain.
I’d encourage you to check it out. Consider it an experiment. You won’t be disappointed with the end product (though you may get a kick in the pants telling you to start taking more action — but that’s a good thing!).
If you’re budgeting’s going well, your logical next step is planning. It’s basically what you get to do with that cash flow you’re finding!