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Everyone needs and deserves a quality financial plan.®

© PIEtech, Inc. Reproduced with permission. All rights reserved. MoneyGuidePro®

Since 1999, MoneyGuidePro has been striving to change advisors’ expectations of financial planning software.  We constantly seek to improve on our philosophy, which incorporates a hybrid of goal-based planning with cash flow after retirement. We believe the industry’s assumption that software is either goal-based OR cash flow-based is a confusing and misleading way to view financial planning software.  All financial planning software includes goals.  The software may not refer to them as goals (expenses or outlays are more common terms), but there are always fields for entering amounts of money clients will spend.  In addition, all software produces results that include some level of annual cash flow.  The real difference is in the level of detail within the assumptions and the granularity of the results.  By convention, financial planning software incorporating the most detail has been referred to as “cash flow” software.

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Some advisors assume that higher net worth clients need detailed cash flow and those with lower net worth (i.e., the middle market) need a simpler approach.  We believe the detailed cash-flow approach to long-term planning is invalid for either group.  No one can possibly predict the detailed values of specific assumptions (property taxes, capital gains taxes, alternative minimum tax or AMT, homeowner’s insurance, or deductions) over the next 20 to 40 years.  Detailed cash flow is budgeting not planning.  It only makes sense to project a detailed budget for a few years.  Assumptions change too often to project budget items for more than three to five years.  For long-term planning, it is much more important to make reasonable, supportable, aggregate assumptions.

Experience shows us that a clients’ net worth does not drive the need for budgeting.  Clients who are not saving enough to meet their goals need budgeting help.  The need for budgeting is not correlated with net worth. It is correlated with big expenses (or projected expenses) relative to income and not enough savings.  In fact, it can be argued from a philosophical perspective that clients with a low net worth actually need better planning, because they have a smaller margin for error.  Our core belief is that "Everyone needs and deserves a quality financial plan."

MoneyGuidePro® is a registered trademark of PIEtech, Inc.