A financial plan is a document that helps you determine how you’ll achieve the goals you want from life, as well as how you’ll meet your future financial needs. A thorough financial plan looks at every aspect of how finances affect you and your family, covering issues such as retirement, education, housing, medical needs, insurance and luxuries. It examines your present situation, spells out your needs, and decides what steps will allow you to meet those needs. A good financial plan also gives you benchmarks to use as targets, so you’ll be able to tell how much progress you’ve made.
Who needs a financial plan and why?
Nearly everyone can benefit from having a financial plan. If you’re hoping to buy a home (or pay off your current mortgage), retire somewhere along the way, send your children to college, ensure that your spouse is financially stable in case something happens to you, or simply have a dream you want to pursue, a financial plan can provide a practical, sensible framework for making it happen. A good plan will examine every aspect of your life today and address the kind of life you want to live in years to come.
What is my investment of time and money?
Some people have the financial know-how to develop a plan on their own. Most people, however, find the process difficult and welcome help from a professional, whether that’s a financial planner, an accountant, or an attorney. Some professionals charge fees for developing a plan, while others earn their income by earning commissions from selling you the financial products they recommended. If you decide to work with a professional, expect to spend several hours gathering information and helping that professional develop a complete understanding of your situation, needs, and goals.
When should I do a financial plan and update it?
If you haven’t already developed a financial plan, now is the perfect time to start. If you already have a plan, remember that your situation and needs will change over time. It’s a good idea to review your plan at least yearly to ensure that it still reflects your situation and meets your needs. Most financial professionals will remind you to review your plan regularly. It’s also a good idea to review a plan if there’s been a major change in your life, such as the loss of a job, the birth of a child, or the death of a spouse.
What am I missing by not having a plan?
If you’re not sure of where you’re going, how will you ever know when (or if) you’ve arrived? A financial plan is just as important to your future as a road map is when traveling. Having a plan will keep you focused on your destination, so you’re less likely to make wrong moves along the way. A plan will also help you determine how close you are to your goals and remind you of the progress you’ve already made. Most of all, developing a plan forces you to stop and focus on where you are right now and where you hope to be.