• Matt Oberholzer

Importance of Having a Financial Plan

Something taught from an early age is the importance of saving. But when it comes time to actually save, there are two types of people: planners and non-planners. Planners generally know what they’re saving for, how much they need to put away, and how long it will take them to reach their goals. Non-planners typically save when they can, and may even put a small amount of money away into a work-sponsored retirement plan and just hope that things work out.

With the assistance of a financial advisor, you can rest assured that you are well on your way to reaching financial success. Financial planning helps you determine, define and reach your short and long-term goals.


A strong financial plan will:


1. Allow you to sleep at night knowing you are on a path to success


A survey conducted by Schwab Modern Wealth in 2021 found that 65% of people with a written financial plan say they feel financially stable, while only 40% of those without a plan feel the same level of comfort. Fifty-four percent of planners felt “very confident” they would reach their financial goals, compared with only 18% of non-planners.


Having a written financial plan gives you a measurable goal to work toward. Because you can track your progress, you can reduce doubt or uncertainty about your decisions and make adjustments to help overcome obstacles that could derail you.


2. Keep you on the right path during economic turmoil


A good financial planner will make sure that your goals can be reached even if there are uncertain economic times ahead. Monte Carlo simulations are statistical simulations that model the probability of different outcomes in a process that can't be easily predicted due to the intervention of random variables. In other words, it's used to measure the overall probability of success of a financial plan taking into consideration the possibility of both negative and positive returns in the future.


3. Help reduce uncertainties which can be a hinderance to growth


Financial planning should be holistic in nature. In other words, a planner should not just look at investments rather they should consider the whole person. Part of any financial plan should include risk analysis and should there be a risk deemed too high or probable, there should be measures in place to reduce, or transfer the risk. This commonly takes place in the form of insurance, but everyone’s circumstances differ.


4. A financial plan can jumpstart savings, even with a small amount of money

The most common reason cited for not having a plan is “I don’t have enough money.” This is a misconception. Planning, even in small steps, doesn’t take large sums of money to start.

In fact, financial planning can have a profound impact on lower-income households by helping people improve their saving and budgeting habits.


5. Lead to better financial habits


Financial planning isn’t just about investing; it’s about what money can do for your confidence, security, and quality of life—such as the protection that life insurance offers or the peace of mind that an emergency fund can provide. Research also shows that planning supports sound money habits as well.


A financial plan may sound like a chore. But for successful investors, it’s the foundation on which to build, understand and achieve your goals. Having a written plan can increase confidence and result in more constructive financial behavior. People working with a financial planner who is taking a holistic look at their needs, beyond just products and portfolio, are likely better off than those working with a planner who takes a transactional approach.

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