Are you Ready for Your Financial Report Card?

Financial planning is a math equation. This equation has multiple variables ranging from intrinsic metrics like your goals, financial resources, personal preferences, and so on, to external factors like inflation, tax rates, expected rates of return, and so on. For this equation though, the conclusion is less like a math solution and more like a report card: “A” is passing with flying colors, “C” is barely passing, and “F” is failing.

Do you know where you stand as an investor?  Have you done sufficient planning with your advisor and are ready for a test of your financial plan? It would be best if you had clarity on what “grade” your current plan would receive and what steps you need to take to improve on that grade.

Today on Thoughts On Money looks at three financial planning grades and discuss what considerations each “student” (and “teacher/advisor”) should focus on.

Failing Isn’t the Same as Failure

In school, if you fail a course, you have to retake it. In financial planning, if your plan is “failing,” it just means you need to adjust your assumptions to create a “passing” forecast. The primary goal of financial planning is to assure that one’s financial resources are sufficient to last a lifetime – or simply said, you don’t want to outlive your money.

Ultimately, if we wanted to simplify our planning equation, we need to make sure that your portfolio is large enough to sustain your expenses (withdrawals) throughout your lifetime. Financial Planning 101 tells us that we typically don’t want to be withdrawing more than 4% of our portfolio per year – this is just a rule of thumb and won’t apply to every situation, but provides a good reference point. This means that if you want to spend “X” per year, you’ll need 25 times “X” to meet that 4% withdrawal target.

If your nest egg isn’t 25 times the size of your expected annual expenses, then you may need to make other adjustments. Again, financial planning is an equation with multiple variables, which means you have lots of different levers you can pull on to make the plan work. You could retire later, spend less, downsize, reverse mortgage, move out of state, transition to part-time work, adjust your investment allocations, and the list goes on. Some of these variables are fantastic solutions, some are not applicable, and some are absolutely not preferred. This is why financial plans are tailored to the investor.

It’s important to know that a failing plan doesn’t make you a failure; it merely means adjustments need to be made. Work with your advisor to make the adjustments that create the most significant impact to improve the grade of your plan.

C’s Get Degrees  

I remember the adage in college, “C’s Get Degrees.” The idea was, passing is all that matters and that ultimately you want a degree for your resume, but no one will ever care about your GPA. This may be true, but getting C’s is stressful. In college, finals are usually a heavy weighting into your final grade for a course. So think about this, if you walk into the final with a “C” in the course that means that one wrong answer on the final exam might be the tipping point for you failing the course. This strategy doesn’t leave much margin for error.

Financial planning is very similar. When you have a plan that is just passing, it doesn’t leave room for any hiccups. Yet, we know life is FULL of hiccups and unexpected occurrences – a surprise medical bill, car accidents, disappointing investment returns, etc. If you have a “C” plan, you should have backup strategies and emergency plans written into your financial plan. Planning for these potential “worst-case-scenario” events in your plan helps you to be prepared.

A passing plan also doesn’t allow for foolish investor behavior. One must be on guard against fear and greed that might lead them astray from the plan they have set in place. Fear will reveal itself in times of market calamity, like March of this year, and may lead an investor to panic and alter their investment allocations outside of what was laid out in their financial plan. Greed will reveal itself in times of market euphoria, which also happens to be present this year in different segments of the market, and may lead an investor to overpay for an investment that seems like a “home-run-sure-thing-can’t-fail-get-rich-quick-opportunity.” Again, a passing plan can’t afford these types of costly behavioral mistakes.

Much like a C student should be highly engaged with their professor or tutor, an investor with a passing plan should be highly engaged with their advisors. Their financial plan should be reviewed and updated regularly.

My A+ Students

Some students are naturally gifted academically, but many, and I’d say most are also hardworking. They essentially dedicate more time and effort to their studies than the average student. This comes with a sacrifice too – less free time, leisure, entertainment, etc. and often, this personality type has trouble ever breaking out of this mold. I’m sure you had a friend like this in school, or maybe you were this person, but it was like pulling teeth to get them to go bowling or to watch a movie or go to the beach. Their dedication became an obsession, and having fun wasn’t often a priority.

My clients with A+ financial plans are cut from the same cloth. They are folks that have always been diligent savers, lived within their means, and now have financial resources that are more than sufficient to meet their expense needs. They’ve been dedicated to a lifetime of financial discipline, and the trajectory of their financial plan will leave significant wealth to their heirs, an admirable reality.

Here’s a word of advice to my A+ savers/planners – have some fun! Dream. Dream BIG! Yes, you are going to leave significant wealth to the next generation, but what would you LOVE to do with your financial resources during your lifetime? Is there a charity that you want to bless? Grandkids that you want to fund college for? A vacation home for gathering the family together? You are familiar with brainstorming, right? I want you to do some “dreamstorming” and then work with your financial planner/advisor to write these financial dreams into your financial plan. Your diligence should be rewarded, you should enjoy the fruits of your labor, and the world is your oyster, my friend.

Know Where You Stand

Everything I’ve talked about today depends on you knowing where your stand so you can plan accordingly. What grade would you assign to your current financial plan? Don’t know? It sounds like an excellent opportunity to book some time with your advisor and review/update your plan. For some, this will lead to making some needed adjustments; for others, it will reiterate the importance of staying the course, and still, for others, it will spark conversations about BIG financial dreams. Much good will come from this awareness and the conversations that will birth from it.

I hope you enjoyed today’s conversation and please feel free to send your questions and comments to me at

This is TOM signing off and I will be back next week with more of my Thoughts On Money…

The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.

About the Author

Trevor Cummings

Private Wealth Advisor, Partner

Trevor is a Private Wealth Advisor focused on building customized financial plans for his and many clients of the team.

As the author of TOM [Thoughts On Money], Trevor endeavors to write and speak about financial concepts and principles in a kind of “straight” talk demeanor and posture.

He received his Bachelor’s degree in Organizational Leadership from Biola University and his MBA from California State University, Fullerton.


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