What are the strategies that financial planners use with their own clients and how do they stack them together to help their clients reach their goals?

The concept of strategy stacking is central to getting the most out of your financial plan.

In its simplest form, strategy stacking is the process of putting together different financial planning strategies together, to create a personal financial plan.

The strategies to you stack (or do not stack) in your plan, will have an impact on your financial life.

The purpose of strategy stacking is to help you maximise the probability of reaching your financial goals.

Fundamentally, one strategy by itself might achieve something but by strategy stacking, the process of using multiple strategies – sometimes separately and sometimes together – has the ability to achieve more.

So, how do you strategy stack, to put the odds in your favour?

Here are six things you should consider when stacking the financial planning strategies you decide to use.

1. Understand your ‘why’

Your ‘why’ is simply your goals.

They might be short-term goals like paying down a credit card debt or a savings goal for a holiday. It might be a medium-term goal like paying for your children’s education. Or it could be a long-term goal like paying off your mortgage or boosting your superannuation to fund your retirement.

Many times as a financial planner I’ve sat around a table asking clients about their goals. Often they’ve never defined their goals for themselves or with each other.

It’s also important to note that as your goals change, the strategies you stack should also change.

2. Remember the five foundations of money management

Without setting strong foundations, you’re probably going to build unstable strategy stacks, and this will reduce your chances of achieving your ‘why’.

The five foundations of money management are:

1. Respecting your earnings
2. Paying attention to your spending
3. Remembering that the cost of money is interest
4. Being realistic about your goals; and
5. Rewarding yourself.

All the foundations are important and it’s essential not to take shortcuts.

Let’s take respecting your earnings as an example. Many people take the next pay cheque for granted and don’t think about the long-term impact of earnings.

Let’s say you earn $80,000 a year on average over your working life. Over 42 years (from age 18 to 60), that equates to $3.36 million in earnings.

If you think about that for a moment, you might actually do something differently and start sooner.

3. Start with the ‘basic stack’: Budgeting, where earnings meet spending

If the five foundations determine the stability of your strategy stack, then the basic stack – the budget – is the floor upon which you build your stack.

Without a budget you’re building your financial house without a floor.

Some of the best client meetings I have are with people about thinking about earnings differently.

We all have the opportunity to generate additional income that we don’t have to sell our time for. We can do this through investments and also through superannuation, in the longer term.

Also, budget is not about denial. It really is about making more conscious decisions to get fair value in all areas of your spending.

Don’t you deserve to get the best value from the dollars you earn?

4. Use a risk assessment strategy

While it might be nice to think life is all cupcakes and roses, the reality is life also comes with risk. So does your financial life.

Risk can come in many shapes and forms so when you think about strategy stacking, think about the risk as well as the rewards.

If we’re risk adverse, we might see things with a black hat on and never stack any strategies to help us reach our goals.

Alternatively, if we see the world through ‘rose coloured glasses’ we might only see the good and not pay attention to risk at all.

The secret to a good risk strategy is identifying the facts of a situation and making a rational (not emotional) judgements about them.

5. Stack your strategies appropriately

There is a mistake in trying to stack every financial planning strategy you can, thinking it will do more for you.

In fact, it could result in an overly complicated and unstable stack. You also need to stack your financial planning strategies in the right order.

For example, making additional contributions to superannuation is a great way to boost your retirement savings. But if you’ve got debt you haven’t made a plan to pay back, you could be putting yourself in the short to medium term.

Also give consideration to using a financial planner to help you build your strategy stack. A financial planner can help you have a more confident conversation about the options available to you and how to put them together.

6. Assess, execute, review, refine and repeat

The goal here really is about implementing a strategy stack, see what it delivers, adjust it and implement again.

Like all social sciences, financial planning is not a perfect science, but over time with focus, you’ll be able to maximise the probability of achieving your goals. The key issue here is about learning and changing, to help you more confidently move forward.

Executed well, the strategy stacking philosophy plays an essential role within your financial plan. It will help you select the right financial planning strategies to use for your situation and give you the greatest probability of reaching your short, medium, and long-term goals.