Holistic Financial Planning: A Road Map for the Year
Guest blog by Preston Sullivan
I started using Holistic Management® Financial Planning in 1995 after returning from the financial training session of the Certified Educator Training Program where we were learning the process and how to teach it to others. I remember sitting in class just totally captivated at the process being taught. I distinctly remember saying to myself, “No wonder farmers are going broke.”
It was then that I realized their financial straits were not caused by all the things they complain about, but rather, their lack of planning. That was such a revelation to me. Armed with that knowledge, I now see others making that same mistake all the time. Routinely I hear farmers complaining about prices, and the government as reasons why they cannot make it financially. Yet in most cases, these two are not the cause at all. It is often their own fear of change and their resistance to it.
Once the planning process sunk in and the thinking changed in my head, there was no going back. I could see tremendous potential not only for my own personal finances, but to teach it to others as well.
Getting Started
When I returned to Arkansas I started my own holistic financial plan immediately. I followed the financial planning guide step by step until the plan was finished. I find that it’s best to follow the book like a recipe as the steps definitely follow each other and you lose a lot by skipping steps.
At first, I wondered how I would come up with reliable estimates of expense items so I just pieced together estimates from the previous year from my checkbook ledger. That was good enough to get started.
I wrote all the income and expenses on the paper worksheets then transferred the numbers to the annual planning sheet. I used the paper sheets until HMI developed their financial planning software and started using that with my 1999 financial plan. The software definitely makes the planning process and the monthly monitoring go faster because all the calculations are done instantly as the numbers are entered. You don’t have to spend time writing numbers on the sheets or doing calculations on a hand calculator.
You can also do “what if” scenarios to see what would happen with changes in income or expenses. I spend about two to three days, spread out over a month or more, in the fall of each year doing my holistic financial plan for the upcoming year. By the time the NewYear rolls over, I already know how much income, savings, and expenses I will likely have in the upcoming year.
Consistent Profit
The results have been impressive. Even with my modest salary, I have averaged a 20% savings rate over the past five years. Savings rate for the past two years was 23% and 22% respectively. Prior to doing a holistic financial plan, I had always managed to live within my means, but I never had a good sense of where my money went. I just looked at my checkbook every few weeks and would cut back on spending if the balance got below a number, I considered a threshold. When the checking account balance got well above the threshold, I would send some money to my retirement fund.
To put this into perspective, in a recent article by Alan Newport, he says most Americans spend 21% of their income for credit card and other consumer debt payments. This expense provides no value at all because so much of it is paying off high interest! At the end of each year, I create bar charts showing my income and expenses as well as a table showing the expense percentages of major categories. These major categories include taxes, insurance, utilities, housing, auto maintenance, health maintenance, food, etc.
I use these charts to show others how well the planning process works. The table helps guide my decision-making to find better value where possible and to make year to year comparisons. For example, my auto maintenance category went down by half when I switched from a Ford station wagon to a Toyota pickup. Once I realized my wagon would need replacing, I began to research which autos had the lowest maintenance costs. Toyota was among the lowest—that’s why I bought one. The purchase price was about what I paid for the wagon. Both vehicles were five years old with around 60,000 miles on them. Buying good used vehicles with high durability keeps overall auto cost to a minimum.
The tax category is the highest one of all. Insurance continues to be a challenge. I wish I could find a way to spend insurance money toward risking something good happening rather than hedging against something bad happening. If you have ideas on how to do this, please contact me.
My percentage table also provides another benefit because it shows me where I am receiving extremely high value. For example it’s easy to take electricity for granted, but until you do without it for a few days, you don’t realize how much value you’re receiving for such a low price. For a measly $30 per month I have lights, refrigeration, clothes washing, radio, TV, and computer with just the flip of a switch. Knowing this, helps me look for higher value in some other expenses—such as insurance!
I have to say the biggest change I’ve made since using holistic financial planning is in how I think about money. Now, I am able to align my expenses with my holistic goal. Doing that gives me certainty that my expenses are going toward producing the life I want and living my values.
Teaching Others
Teaching this financial planning process to others is pure pleasure for me. I’m a detail person anyway so working with numbers, tables, and charts is a natural. Once people realize that their financial problems are typically spending problems not income problems they begin to feel a sense of more control over their finances. Then they get excited about the possibilities.
When I teach financial planning, I have my students bring their own financial records so they can develop their holistic financial plan right there in class. They leave the training with a sense of confidence that they can manage their finances successfully. I’ve seen people get so excited that they stayed up late in the night getting their financial plans complete. It gave them a since of control they had not experienced before.
Holistic financial planning has also been the most successful method I have found to get people interested in learning Holistic Management. I start by showing them my expense and income bar charts and my savings rate in the percentage tables. Then I explain how they can align their expenses with their values and plan their savings upfront. Almost everyone is interested in making more money. When I tell them that they can make more money for themselves without increasing their income, their interest level goes up.
Holistic financial planning has provided a systematic process to get my financial house in order and keep it that way because it provides a roadmap for the financial year. Because I have found it so helpful in my own life, I enjoy teaching it to others. That educational experience has in turn provided me with one of the most meaningful contributions I can offer others.
Preston Sullivan is a Holistic Management Certified Educator and consultant. He lives in Meadville, Mississippi. This article was originally published in HMI’s journal IN PRACTICE in issue #83 in May 2002. Click here to learn more about HMI’s Holistic Financial Planning Online Course.
