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Financial planning is the process of assessing a person's current financial situation and long-term goals, and developing actionable ways to achieve those quantifiable goals. The process of financial planning is comprehensive and requires the examination of spending habits, savings, emergency accounts, investments, insurance needs, retirement plans, and other projected future expenses. Once this information is collected, it is reviewed and analyzed.

Key Points

• Financial planning creates a roadmap for your financial future.
• Planning helps you prepare for life's unexpected events.
• A strong financial plan evolves as your goals and circumstances change.
• Smart financial decisions today can lead to greater long-term confidence.
• A fee-only fiduciary advisor can help keep your plan on track.

Table of Contents

1. Why Financial Planning Matters
2. Building Toward Your Financial Goals
3. Preparing for Life's Unexpected Events
4. Making Better Financial Decisions
5. Working with a Financial Planner

Why Financial Planning Matters

How do people benefit from this process? The latest consumer survey conducted by the National Association of Personal Financial Advisors (NAPFA) found that Americans are overwhelmingly stressed about their current and future finances, and 74% of Americans wish they could get a financial planning “do over” to set up a better financial situation. This is one way that developing a plan is helpful. Looking ahead reduces stress because you will have a more secure idea of what’s going to happen next.

Building Toward Your Financial Goals

According to the same NAPFA survey, 34% of responders think finances will stress them out in the later years of life, 26% feel they have just enough to get by without working, and 22% feel they won’t be able to enjoy retirement due to money problems. Even though people clearly share some common concerns about retirement, 54% of those surveyed say they have not yet even considered their options. If you’re worried about the future, the time to take action is now. Focus that anxious energy on developing a plan. It will alleviate worries and provide you with tangible financial solutions.

A truly comprehensive financial plan will reveal to you how you should be investing in preparation for retirement, as well as all the other ways you could be tucking money aside for the future in general. It’s easy to push off saving for things you want and need that appear to be far off in the distance, such as retirement, a vehicle, a house, or tuition. However, it takes years to accumulate enough funds to pay for the more expensive things in life, so the sooner you start planning, the better.

Preparing for Life's Unexpected Events

Although they are crucial aspects of financial planning, this process covers more than just current spending and saving for specific expenses. A good financial plan also requires you to assess your will, trusts, beneficiary designations on retirement accounts, and keep your life insurance policies up to date. It might be scary to look so far ahead that you have to consider what will happen to your family and your money once you’re gone, but having a plan for such things will actually put your mind at ease because your affairs are in order and your people will be in good hands.

Also, financial planning can help to provide you with a general savings safety net, which is particularly helpful during an unexpected turn of events, such as an illness, layoff, or natural disaster. It's common for adults aged 30 or older to experience at least one financial challenge per year. There are certain things in life that we cannot predict, but we can still do our best to plan for the unpredictable. On the bright side, not everything unexpected is negative. Financial planning will also help you figure out how to best fit things like receiving an inheritance, paying for a wedding, starting a business, or having a child into your bigger picture.

Making Better Financial Decisions

As you can see, financial planning at its best takes into account not just the numbers in your bank account, but how your overall lifestyle affects those numbers. Examine your workplace benefits (including insurance policies, 401(k)s, and stock options being offered to you). Are you taking proper advantage of them? Speaking of stock options, integrating your long-term goals and risk appetite into your investment plan is also part of the financial planning process. This is because when you take your whole life into account, you’ll be able to make investment decisions with a much more well-rounded perspective.

Working With a Financial Planner

Financial planning can be done on your own or with the help of a certified financial planner. Having someone else, especially a trained professional, look at your finances might reveal missed growth opportunities. Financial planners are also very informed about many aspects of finances, such as making investment decisions, which means you’ll be much more likely to choose the right mix of assets for you if you have help. The thing is, if you attempt to tackle this process all on your own, you may spend a lot of time and energy only to receive contradictory advice from various sources on the internet.

Instead, consider meeting with a fee-only financial planner, who acts as a fiduciary, meaning they put the client’s interest ahead of their own and act in the client’s interests at all times. This type of financial advisor will assist you in developing and implementing a plan, and then they’ll continuously help to monitor your finances. After all, life changes, so your financial plan has to be flexible as well. A professional will know how to account for any changes and adjust the plan accordingly.