You may be doing everything right with your finances: contributing to a 401(k), and building savings for a house, a new car, college tuition, or retirement.
But have you pulled all those pieces together into a true financial plan?
A financial plan provides a roadmap to help you understand your financial picture, achieve your financial goals and navigate life’s unexpected challenges. A plan can consider unexpected life events, tax considerations, inflation, and changing market conditions while projecting the likelihood that you can reach your goals and suggests adjustments to help you overcome hurdles along the way. It can allow you to practice changing your goals to see if it is worth it to change.
Schwab’s 2024 Modern Wealth Survey reported that only 36% of Americans had a written financial plan. Among those who did have a plan, three in four said it made them feel more in control of their finances and nearly all (96%) said they felt confident that they would reach their financial goals.
Of those without a plan, 43% said they didn’t have enough money to make one, 25% said it seemed too complicated to do so, and 21% said they didn’t have time to develop one.
What Goes into a Plan?
Every financial plan looks different but there are some standard elements.
One is a statement of net worth which shows all your assets minus your liabilities. Seeing everything you both own and owe in one place can be an eye-opener.
Debt is sometimes treated like a four-letter obscenity, but not all debt is bad debt. A mortgage, for example, can help build equity—and boost your credit score in the process. High-interest consumer debt such as credit cards, on the other hand, can weigh heavily on your credit score. Plus, every dollar you pay in finance charges and interest is one you can’t put toward other goals.
An emergency fund can help you avoid tapping your long-term savings to make ends meet when the unexpected happens, such as losing your job or car repairs or medical bills. It’s generally a good idea to save enough to cover at least three months’—ideally six months’—worth of essential living expenses (for example, groceries, housing, transportation, and utilities).
Another element is a taking look at your current cash flow, the money coming in and going out of your accounts each month. Your financial plan might include suggestions on how you can adjust your cash flow, so you have more to save and invest.
You should make an analysis of your financial goals and how to achieve them. You might need to account for buying a home or starting a business. Your goals as a single person may be different from those of a married couple with children. Some people may need a debt-repayment strategy. Others might need a retirement plan that helps them understand what they’ll need to cover living expenses after they stop working.
What a Plan Can Do
A financial plan is important for people of all ages and financial backgrounds, not just older, wealthy people. Financial planning allows you to set a measurable goal to work toward. Because you can track your progress, you can reduce doubt or uncertainty about your decisions and adjust to help overcome obstacles that could derail you.
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. It aims to give you a complete picture of where you stand financially and identify changes you may need to make to increase the likelihood of achieving your goal. Having a financial plan supports sound money habits as well.
A financial plan is not a set-it-and-forget-it exercise, but an ongoing process that changes as your circumstances do. It can help you uncover vulnerabilities, such as not having enough saved in an emergency fund or being underinsured. It may reassure you over the choices in your investment portfolio when the markets go up and down.
Once you have a plan set up, you can contemplate any wishes and dreams you may have and see if maybe there is a way to make them a reality.
Conclusion: It’s Worth the Effort
Financial planning may sound like a chore, but it provides a foundation for understanding, tracking, and achieving your goals.
A financial plan can also keep you focused on your goals in a 24/7 news cycle with wild market fluctuations. Because you are seeing the big picture a plan can give you confidence to make the next move, whether it is pending more or saving more.
Whether you’re saving for a single goal, such as a new house or retirement, or you need comprehensive planning and wealth management, a financial adviser can help you with identifying your priorities and creating a plan.
As always, if you have any questions about this report or any other questions, please reach out to Bowen Asset at info@bowenasset.com or (610) 793-1001.
Disclaimer
While this article may concern an area of investing or investment strategy in which we supply advice to clients, this document is not intended to constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we and/or our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information.
Past performance should not be taken as an indicator or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. As with any investment strategy or portion thereof, there is potential for profit as well as the possibility of loss. The price, value of and income from investments mentioned in this report (if any) can fall as well as rise. To the extent that any financial projections are contained herein, such projections are dependent on the occurrence of future events, which cannot be predicted or assumed; therefore, the actual results achieved during the projection period, if applicable, may vary materially from the projections.