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Understanding Different Types of Financial Plans

Updated: Mar 27

What is a financial plan? What does it cover? Is it even helpful?

And most importantly, why would I want one?

These are some common questions we hear when meeting a new client for the first time. And the answer to the questions can vary depending on your needs and circumstances. Additionally, financial firms handle the financial planning process differently, making it even more confusing to someone looking for financial guidance.

With that in mind, here are some general ideas of what you can expect, what the differences are, and how we at Straight Path make these plans create real positive impact for you.

1. Length of Plan

Traditionally, financial plans have been 50+ pages of detailed projections and graphs. This often leaves people feeling overwhelmed and inundated with information that may not be important to them.

On the flip side, online calculators will give basic projections after inputting variables such as income and expenses. Although this is more simplified, it misses the optimization piece that may help you accomplish your financial goals and over simplifies the process.

2. Goal Based vs. Cash Flow

There are two main types of financial planning analysis used in the industry: Goals-based planning and cash flow planning. Goals-based planning begins with client goals, assets, and savings and then creates a plan based on those variables. Then, you adjust spending, saving, timing and risk until you have reached an appropriate level of success. This approach helps answer the question “Am I going to reach my goals?”. If not, you must determine what trade offs are necessary to get the plan on track.

Cash flow planning takes your current financial position and uses predictions and forecasting to determine cash flow plans for the future. It starts by accounting for clients' spending year by year. Then, it details cash flow projections to help you ensure you have the necessary funds to meet your goals for the future. This approach is advantageous for detailed income tax planning, or for people with complex compensation structures.

3. Topics Included

Financial plans differ in the topics included and the depth at which they are covered. For example, most financial plans focus on retirement planning. Retirement planning focuses on determining your ideal retirement income and the necessary savings and assets needed to reach those goals. In addition, education planning is often part of a financial plan for clients wishing to provide funds for children’s education. Finally, tax planning is an integral part of a financial plan. If your financial plan does not take into account taxes in depth, it can be a missed savings opportunity.

At Straight Path, our goal is to have a balance between the two extremes of length. We want it to include graphs and projections that are helpful to your situation, but do it in a way that is not handing you a large printout to take home. We desire for the process to be interactive, where the client helps us complete the plan and sees the impact that different variables have on the success of their plan. We strive for a mix between goals-based and cash flow planning. Both approaches are useful as it is important to cash flow plan for the short term to ensure better tax planning, but focus on accomplishing long-term goals for the future. And throughout it all, we want the process to be adaptive. Life changes frequently, so it is important to regularly revisit your financial plan to adjust it accordingly.

If you haven’t created a financial plan before, have uncertainty about reaching future goals, or have questions about any of these differences in plans, we would be happy to help. If you are interested, please reach out here.


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