Why Having a Financial Plan Is So Important

We all know the importance of saving money and planning for the future, but while many people put aside money, some do so with a plan and others without one.

Believe it or not, the majority of Americans fall into the “no planning” category, with just one-third even having a written financial plan, according to a recent survey by investment firm Charles Schwab. On top of that, half of those surveyed said they don’t have enough money to even make planning worthwhile.

 Here are four reasons a plan can help you get a handle on your present and future finances.

You’ll have more confidence — A written financial plan increases confidence. The survey found that:

  • Two-thirds of people with a written financial plan feel they are financially stable, compared with 40% of those without a plan.
  • 54% of planners felt very confident they would reach their financial goals, compared with only 18% of non-planners.

Putting your plan down on paper will give you a roadmap for achieving your goals. It will also help you track how well you are doing, and you’ll have less doubt about your decisions. Also, by tracking your progress you can adjust your strategy if market conditions change or other obstacles crop up.

It can get you started on saving money — Most people who don’t have a plan say it is because they don’t have enough money to save or invest.

You don’t need to have a lot of money to start a plan.  Studies have found that even lower-income households that have a financial plan can boost their savings, as well as get control over their budgeting and spending.

The plan can also help you prioritize your goals and how you move funds to your savings and investments.

It can help you build an investment portfolio — Once you have a financial plan in place, you’ll have a good understanding of your goals, and how long you will need to save to reach those goals. You’ll also gain an understanding of your risk tolerance.

When you start implementing your plan, you will want to be putting money into a few different “streams”, such as short-term and emergency savings, your investments and your retirement accounts.

Thanks to having a plan in place, you can make sound investments that will help further your financial goals. 

It can improve other parts of your life — Putting together a financial plan takes time and research and those acts alone can help improve your discipline about other facets of your life.

The Schwab study found that:

  • 65% of planners have an emergency fund, compared to 33% of non-planners.
  • 71% of planners are aware of fees and investment costs, compared to 45% of non-planners.
  • 87% of planners regularly rebalance their portfolio, compared to 63% of non-planners.
  • 47% of planners never carry a credit card balance, make payments on time or have no debt, compared to 29% of non-planners. 

The takeaway

Getting started on a financial plan can be daunting, especially if you are not well-versed on how to invest and what to prioritize.

We can help you get started on a plan and put you on the road to financial freedom and a comfortable retirement.

Leave a Reply