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Synergy has become a popular term these days. There are books available on synergy relating to food, clothing, fitness, and physical and mental health to name a few. As you might expect, the concept of synergy also applies to financial planning. As a comprehensive fee-only financial advisor, I see the benefits in my clients’ progress because of synergic effects.

Synergy in financial planning can only be achieved through connectivity. Think in terms of Sir Isaac Newton’s Third Law: every action has an equal and opposite reaction. Every personal finance move or decision creates a reaction in another area of your financial life. The key is to create positive reactions and not negative reactions.

For example, buying a home that is too expensive will create negative synergy to your cash flow. It will create a scenario that will produce a negative snowball of reactions that can lead to saving less for retirement, a negative cash flow, and possibly bankruptcy.

While negative synergy can create a downward spiral, positive financial synergy can spur tremendous financial growth. An example we can all relate to is saving for retirement. Money contributed into a 401k is tax-deferred; therefore, the contributions will reduce your tax bill. This is positive synergy. The excess funds created by the tax reduction from the initial 401k contribution can now also be contributed into the 401k. The more money contributed the greater the tax reduction. The greater the tax reduction the more cash is freed up. This is just one example of financial synergy between two areas of personal finance: taxes and retirement.

There are many areas involved in personal finance. Estate planning, retirement planning, taxes, insurance, cash flow, goal setting, investments, and education planning are some of the more common topics involved with financial planning. Imagine the traction that can be generated by constructing a financial plan by integrating all of these pieces. The positive momentum becomes exponential!

Families may employ various professionals to handle their personal finances. A CPA takes on taxes, and a broker covers the investments, while an attorney handles estate planning. Unless these professionals communicate effectively the power of financial synergy is lost. The right hand must know what the left hand is doing. Whether a family uses various professionals or navigates the financial landscape solo, efficient synergic decisions are a must for financial success.

Effective financial planning increases efficiencies across all financial areas, which is synergy. If you feel you are leaving money on the table somewhere in your financial world or feel a lack of connectivity, you should contact a fee-only comprehensive financial planner.