6 Reasons Why You Need A Financial Plan


Tuesday, August 14th, 2018

Are you one of the 68% of adults who doesn't have a budget? (1) Or are you part of the nearly half of American families who don't have anything saved (2) for retirement? Or maybe you have a budget and a retirement account, but aren't sure if you're truly on-target to meet your financial goals?

A financial plan can help you get clarity on goals, stay accountable to taking the right actions, and leave you feeling happier about money.

Wherever you are in your financial journey, a financial plan can help you identify your goals — and show you where you are today and outline what you need to do to reach your goals. Most importantly, a financial plan will provide you with a road map of clear action steps to get you from here to there.

What's included in a financial plan?

Your financial plan is based on your financial reality, your wants and needs, your goals, and the challenges you need to overcome on the way to achieving your goals.

For that reason, every financial plan looks a little different — but there are some standard elements:

  • A statement of your net worth, which shows all of your assets (like cash and investments) and liabilities (like debt). Your net worth is your assets minus any liabilities, and it helps show where you financially stand today.

  • A look at your current cash flow, which is the money coming in and going out of your accounts each month. The plan might include suggestions on how you can adjust your cash flow so you have more to save and invest.

  • An analysis of your biggest financial goals and how much money you'll need to reach them. Your plan should also include a breakdown of the steps you need to take between now and when you want to achieve that goal.

  • A retirement plan that helps you understand what you'll need to cover your living expenses after you stop working. That could also mean an analysis of the accounts you should invest in, how much you should contribute, and any tax strategies you can take advantage of to maximize how much you keep in your nest egg.

  • An investment strategy that's appropriate for your risk tolerance and capacity, time horizons for your goals, and your own personal philosophy on investing your money.

  • Reviews and recommendations on insurance coverage, estate planning needs, and any other special considerations specific to you and your financial life. This will largely depend on what you want to do with your money and what other financial responsibilities or obligations you might have. You might need to account for buying a home or starting a business. Other people may need a debt repayment strategy or a plan for saving for their kids' college education.

Having a financial plan helps you:

1. Gain clarity on your goals.

A plan can help you better understand what you actually want to use your money for, help you achieve the lifestyle you want, and prioritize your goals.

2. Remain accountable.

A huge benefit of a financial plan put together by a trusted advisor, as Jean Chatzky and Michael F. Roizen, MD note, (3) the fact that you don't just get a clear list of to-dos. You get someone to hold you accountable to actually getting them done and helping you follow your financial plan.

3. Stay in tune with your financial reality.

 When you actually know the numbers in your financial life, you're no longer relying on guesswork or simply hoping that it will somehow all work out. If you understand precisely where you stand, you can make informed decisions and smarter choices about how to move forward.

4. Worry less about money.

A plan puts the power in your hands by showing you exactly what you need to do with your finances. Taking control often means gaining more peace of mind, knowing that you have a step-by-step process to follow to reach financial success.

5. Feel happier.

 That's what Farnoosh Torabi (author of When She Makes More,host of CNBC's "Follow the Leader," and creator of the award-winning podcast "So Money") found when she talked with the American College of Financial Services. (4) A financial plan can give you confidence and a positive outlook because it eliminates uncertainty and confusion around finances.

6. Organize your finances. 

With a plan, you can worry less about things slipping through the cracks or missing opportunities simply because you are disorganized. A financial plan isn't a standalone document: it's got the backing of a financial professional who can make good recommendations, provide guidance, and give advice. Working with a professional means seeing more angles of the situation — including aspects of your finances that you may not have thought of before.

Ready to get your financial plan in place? Read more here and learn how to get in touch with one of our financial planners.

Important Disclosure Information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

1. CNN Money, "Nearly 3 in 5 Americans are making this huge financial mistake," Maurie Backman, http://money.cnn.com/2016/10/24/pf/financial-mistake-budget/index.html, April 20, 2018. 

2. CNBC Make It, "Here's how many Americans have nothing at all saved for retirement," Ester Bloom, https://www.cnbc.com/2017/06/13/heres-how-many-americans-have-nothing-at-all-saved-for-retirement.html, April 22, 2018.

3. Oprah.com, "5 Questions to Ask Before You Trust Someone with Your Money," Jean Chatzky and Michael F. Roizen, http://www.oprah.com/money/jean-chatzky-michael-f-roizen-questions-to-ask-financial-advisor#ixzz5DSDvCQaJ, April 22, 2018.

4. Oprah.com, "Questions You Need to Ask Before Hiring a Financial Advisor," Farnoosh Torabi, http://www.oprah.com/money/farnoosh-torabi-when-and-how-to-hire-financial-advisor/all#ixzz5DSELMutq, April 22, 2018. 

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