Now is a great time to assess your financial needs and set achievable goals for your financial future. One way to accomplish this is to develop a financial plan. Financial planning is not a get-rich-quick method, nor is it all about learning how to pick the hot stocks. It is also much more than a buzzword casually tossed around in the financial industry. Simply, financial planning is a process in which you determine what you want to achieve in life and how best to do it with the money you have and will earn.
Most people have similar goals: to be financially secure throughout their lifetime; to be able to retire when they want to; to be able to send their children to college, and to be able to care for their elder parents. Some people may have loftier goals such as starting a business; establishing a charitable foundation or passing an estate on to their heirs, or simpler goals such as building a dream house or vacation home. Yet, emergencies and financial crises can divert us from working toward those desired ends.
Diligent financial planning can make many or all of these goals happen by taking into account all the varied financial aspects of a person’s life: taxes, insurance, retirement, budgeting, estate planning and life goals. It looks at the various—and sometimes competing—aspects of life and develops strategies and objectives that make those parts work together efficiently. Financial planning can help you prioritize your goals based on what is most important to you. You will also be able to determine what is achievable based on your current lifestyle and what type of changes you might need to make in order to reach your goals.
Do I Need Financial Planning?
Most definitely, yes. Everyone can benefit from financial planning regardless of whether you go at it alone or hire a professional. Perhaps, you are a young adult and your goals are paying down debt and learning to live on a budget. Financial planning can establish a healthy pattern of saving and spending habits that will benefit you when you reach milestones in your life such as planning your children’s education or building a home. Or, perhaps you are older, established and your thoughts are more in line with leaving a legacy such as a charitable foundation. In general, identifying what you want to accomplish and creating a strategy to achieve it can greatly increase your chances of reaching that goal. This same philosophy can be applied to your financial goals. A financial plan should allow you to allocate your money now so that you can accomplish your intentions.
Most people react to events rather than design a plan for a distant future event. Financial planning is proactive because it provides a way for you to gain control over your assets before you need them. For example, think about your own retirement. Nowadays, people live well past retirement age—chances are you will live at least 20 years after you retire. A higher education is commonplace now, rather than the exception. With the cost of college increasing between 5% and 7% per year and increasing health care costs, coupled with our increased longevity, it is possible that you will find yourself paying for your children’s education and caring for your parents at the same time as you are preparing for your own retirement.
Financial planning used to be a luxury for the affluent; however, it is becoming increasingly important for average-income households. Many people are under the misconception that financial planning requires substantial wealth and complex lifetime goals. Additionally, most people have their assets in various places such as their home and belongings, retirement plans, brokerage accounts, even real estate or businesses. It takes financial planning to pull it all together to make it work in the most efficient way possible. This includes taxes, insurance and estate planning. Ideally, any important financial decision you make should be done in the context of your overall financial needs and situation.
How Can Financial Planning Benefit Me?
Most importantly, a financial plan will give you a clear picture of where you stand financially and can develop an improved awareness of financial choices. It can provide discipline and direction for how you spend your money so you will be less likely to purchase investments on impulse or follow advice that was not designed specifically for you. A sound financial plan can also ease the anxiety that financial uncertainty can create. By going through the financial planning process, you and your family can establish measurable goals that can be compared to actual results.
It is important to understand a financial plan is not an overnight fix or something you can learn in a one-hour seminar. Financial planning is not an absolute guarantee of a successful financial future. However, the more you plan, the better you should get at planning for future financial events. The better you get, the less risk you may incur in your plan. Your plan should develop over time either as you work with a professional adviser or as you assess your goals and prepare to achieve them on your own.
If you are interested in financial planning, you may call Henssler Financial for more information at 770-429-9166.