Ever seen a “Goodyear” house? Most Goodyear houses are at least 100 years old, and are typically found in farm country. Although they may feature a variety of styles and building materials, the identifying characteristic of a Goodyear house is an obvious addition–a different roofline, a change in elevation, new material for the foundation or siding, and a mix of architectural styles are all telltale signs. This is because a Goodyear house is one where the farmer “had a good year,” and decided to use his profits to expand or upgrade the residence. Farming being a notoriously unpredictable enterprise, additions were sporadic and the scope of the project was often limited by the size of the profit.

As you might imagine, this irregular approach to home improvement produces some funky configurations. Second-story bedrooms might be side-by-side, yet only accessible by different stairways. A bathroom ends up next to the kitchen (instead of close to the sleeping quarters) because the budget constraints keep all the plumbing in one area. A living room is finished with top-grade materials, while the porch attached to it is sparsely framed and covered. And a vintage Goodyear building often has one stairway that ends at a wall–it was just easier to leave it in place.

Over time, the house gets bigger, but still looks incomplete. Besides its quirks, a Goodyear house is quite likely to be inefficient; it may be hard to heat and cool, prone to structural problems, and expensive to maintain. No architect would ever use a Goodyear house as a template for a new home.

The Inefficiencies of Goodyear Financial Planning

Many Americans construct their personal financial programs similar to the Goodyear building method; when times are good, they add something–an investment account, a life insurance policy, a rental property, etc. There isn’t always a rhyme or reason to these decisions, and over time these “Goodyear households” acquire many financial products, but the end results are often out-of-sync and financially inefficient.

For both a Goodyear house and Goodyear financial planning, the biggest problem is the lack of an over-arching set of objectives that guide decisions and make it possible for new additions to integrate with existing assets. Given the often sporadic nature of these new additions (both for a Goodyear house and a Goodyear financial plan), it is understandable that continuity is sometimes lost. Financial decisions are often made in a one-step-back-to-take-two-steps-forward environment, where a new addition often requires the destruction or discarding of previous work.

However, there is another issue at play as well: a tendency by institutions, advisors and consumers to compartmentalize each financial objective. This makes it difficult to construct holistic financial programs that deliver optimal results. Instead, an infinite variety of products and plans are presented as stand-alone items.

Staying with the house analogy, these financial planning processes are similar to designing a dream house room-by-room, with no regard for the overall structure. On one sheet you lay out the perfect master bedroom and use another to detail the ideal bathroom. There’s a separate page for the living room, kitchen, den, patio, etc. In theory, the end result of combining these disparate spaces would be the perfect home–because every room is exactly as you want it. But how functional could a house be if it were built this way? It would be a hodge-podge. Adjoining walls might be different lengths, doorways wouldn’t match up, extra materials would be required, and the exterior view could be less than pleasing. In order to work, the individual rooms have to be framed within a cohesive larger structure.

Consider all of the “rooms” in a typical financial life.

Here’s a partial list:

Borrowing                                  Saving

Insurance                                   Health Care

Real Estate                                 Transportation

Retirement                                 Leisure

Educational Funding                    Estate Planning

Taxation                                     Liability    & Risk

Management

These are quite a few rooms–and most of us probably have several more. When it comes time for a particular room to be added or updated, the tendency is to compartmentalize, to focus on that one room and neglect how it might fit with other parts of our financial house.

Take the topic of retirement. Most of the discussions about how to provide for retirement quickly narrow to plan selection, then narrow again to whether your employer provides a tax-favored plan (such as a 401(k)), or you will establish a personal account (IRA) with similar features. In this compartmentalized context, it’s easy to make apples-to-apples distinctions about contribution limits, investment options, withdrawal privileges and loan restrictions. But should this be the extent of the evaluation?

Since every decision to allocate funds toward one objective means other options must be forgone, it would also be wise to ask, “How will participation in a qualified retirement plan affect the other financial areas of my life?” For example, what will happen to your taxes, your estate plans, your ability to borrow, or your enjoyment of life? You may have evaluated retirement plans, but have you evaluated them in light of the larger objectives for your finances? If not, your compartmentalized decision about a retirement plan may result in a funky, ill-fitting addition to your financial structure.

Elozor Preil is Managing Director at Wealth Advisory Group and Registered Representative and Financial Advisor ofPark Avenue Securities LLC (PAS). He can be reached at [email protected] See www.wagroupllc.com/epreil for full disclosures and disclaimers. Guardian, its subsidiaries, agents, or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.

By Elozor M. Preil