When we give our clients our “Critical Questions” to review at the kickoff of the financial planning process, we always caution them to think about each question as a scenario, to put themselves in situ and play it out.   Why do we do this?   We do this because experience has shown that the breakdown in financial planning is often what happens when we aren’t around to have any influence over the decisions.  We figured the only way to help a client understand why certain choices are being made is to create a visceral experience around the decision, and that also helps to clarify any issues that need to be addressed.   Otherwise, when something occurs even when financial planning has been done, people can feel like they are suddenly left trying to navigate a maze they never even knew existed.

Planning is not just about the financial plan document, it is about the supporting actions that make the plan document viable.

We often find that in the planning process, people are very focused on the projections and the planning document.  However, that document, no matter how granular, only deals with a portion of the overall need.  I will discuss one “critical question” just to illustrate the point.  We’ll use this one:  “Do you know exactly what would happen if you didn’t wake up tomorrow?  Have you taken all the steps necessary to prepare for that day?”

When we started using this framework to kick off financial planning, we provided a full page on a fact finder for brainstorming, and we would get answers like this one—“I have 1 million dollars of life insurance.”    So let me ask you, does that answer the question?  Not really.  When you think about the passing of a loved one (or your passing) there are lots of different issues that need to be considered beyond the amount of insurance you may or may not have. 

• Do your beneficiaries know about the policy?  Do they have the contact information for the company?  Do they understand what will be required to collect it?  Do they have a plan for what to do with the proceeds?  Are there any tax implications (probably not, but it does depend on some different factors like who owns and who paid for the insurance…)?
• Who is the executor of your estate, what assets are included in the estate, does your executor have your will, or know where it is and have access to it, and do they know how to get in touch with your attorney?
• What funeral home should be called, who among your friends and family needs to be called and have bad news broken to them, what newspapers should carry the obituary, do you want to be buried or cremated, where should services be held?
•  Is there cash available for immediate expenses, and what source should be drawn on?

The list can go on and on, depending upon individual circumstances.  Here are five reasons you should take the “critical questions” to launching your financial plan, in order to develop a plan that addresses some key questions in advance.

1. Being satisfied with the quick answer to any one of the critical questions that could apply to you probably means you haven’t thought all that much about the question, and thought about it specifically in relation to your individual circumstances.  The easy rules of thumb regularly offered in the financial press can often crumble when evaluated critically in your own life.
2. Having these answers be very granular enables us to help you figure out what operational next steps are required, for example, creating a letter of instructions for your executor giving them any information needed, and providing it to them so that the information is ready at hand in the event of a tragedy.
3. It creates an opportunity for you to think clearly about what you really want in relationship to any of the questions that may apply to you, so that you can take the necessary steps well ahead of time to make the necessary provisions.  You can then make decisions about what information you share with other stakeholders and the means of communication. 
4. It gives us a useful tool to keep track of things that need to be changed when there are changes in your life.    For example, in the instance above if you were to change the beneficiary of your life insurance, we would know what steps to follow to bring your new beneficiaries up to date, and guide the communication with previous beneficiaries (if necessary) to be explain what is happening.
5. It provides a template so that when an event occurs that might be emotionally difficult like the example above, there is a clear cut path to follow.  This helps us to keep from adding new stresses into a situation that might already be stressful enough. 

The financial planning process is about being prepared for life in its various ups and downs, and being able to choose from the various paths that are presented on the fly, with enough information to be able to make reasonable choices.  It is also a framework for making the sometimes esoteric decisions relate to tangible actions.  We think the critical questions document connects your planning to your life in a very tangible way.  You can use this brainstorming guide to imagine yourself in the situations presented, and consider the issues in a very practical way.  Then, we can put some financial modeling into place to evaluate the decisions and make amendments from there, with a practical view of the pros and cons. 

If you want to try this for yourself, feel free to download the critical questions, or look over some of our other featured content: