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And Why Financial Planning Isn’t Just for the Wealthy

According to Charles Schwab’s 2021 Modern Wealth Survey, 33 percent of Americans have a written financial plan.1 Among those without one, 42 percent say it’s because they don’t think they have enough money to merit a formal plan, 22 percent say it’s too complicated, and 19 percent say they don’t have enough time to develop one. However, those with a financial plan consistently maintain healthier saving and investing habits. Everyone can benefit from having a financial plan in place, not just the wealthy. Most of us realize the benefits regular exercise can have on our health. The same is true of the impact regular planning can have on our wealth.

Any good financial advisor will tell you that the first rule of successful personal finance is to have a clearly defined plan in place. This point is emphasized by Peter Mallouk, the founder and CEO of Creative Planning, in his book The Five Mistakes Every Investor Makes and How to Avoid Them. “Not having a plan” is Mistake #1.

Peter invokes Yogi Berra’s sentiment that “If you don’t know where you are going, you’ll end up someplace else.” You wouldn’t start a race without knowing where the finish line is. However, Peter advises that, “Most investors invest without an endgame laid out in advance. Without a destination, it is easy to drift off course. Without a plan, it is easy to change the strategy midstream, increasing the odds of messing everything up.”

Before you invest a single dollar, you should have a plan. It doesn’t need to be a 150-page road map of how you will budget, save and invest every penny for the rest of your life. Instead, start with a plan that is simple and straightforward.

Need more incentive to begin the planning process? Consider the following. A written financial plan can:

  • Increase your financial confidence and peace of mind
  • Help you budget and meet your financial goals
  • Lead to better habits
  • Help you identify, avoid and address various risks, including investment risks, insurance risks and estate planning risks
  • Guide your risk tolerance and inform how aggressively or conservatively to invest

Whether or not you have a financial plan in place, you are likely aware of the benefits. Less talked about are the ramifications of not having a written financial plan.

Ramification #1 – Coming up short on your financial goals

It is often said that failing to plan is planning to fail. By not taking time to reflect on where you are financially, where you want to be and how to get there, you are unlikely to achieve your financial goals. Planning early gives you more flexibility when life throws complications your way.

Ramification #2 – Missing an opportunity to leave a legacy

Tax and inheritance laws are increasingly complex, and the best solution for other investors may not be what’s best for you and your family. Documenting your financial priorities, such as paying for children’s education, purchasing a home, starting a business or enhancing the amount you can pass to your heirs following your death, can help you choose the right path toward achieving your long-term goals.

Ramification #3 – Working longer than you need to (or want to)

You likely have an ideal retirement age in mind, but could you be a position to lower that retirement age by a few years and still achieve your retirement goals? At Creative Planning, we often encounter clients who, through the planning process, discover that they can actually retire sooner than expected by making some changes to their investment strategy. The only way to know exactly where you stand on the path toward retirement is to have a road map to help you get there.