Key takeaways:

  • A financial plan is more than a budget; it helps you plan for your future and prioritize your long-term financial goals.
  • Everyone, regardless of age or financial status, needs a financial plan.
  • Financial planning can be complicated so avoid the temptation to do it yourself; instead, find a financial professional who will help you make smart, deliberate decisions about your financial future.


While the need to have a financial plan may not be clear to all of us, there are many reasons why all of us need a financial plan. Here are five of them. But first…


What is a financial plan?

Are you familiar with the classic ‘What to Expect’ books on pregnancy and parenting? They help expectant and new parents navigate their way through the scary unknowns of childbirth and beyond. A financial plan is similar—it’s designed to help you achieve your financial goals while navigating all the uncertainties that life has in store for you and your family, helping you plan for the unexpected along the way.

A good financial plan considers your goals as well as your savings and investments (both current and future value). It also accounts for your planned expenditures through the years for things like college for your children, big purchases such as homes or vacation properties, travel, and general retirement expenses, as well as health care and insurance. And just as importantly, it also helps you plan for the things you don’t see on your horizon.

In essence, a financial plan gives you a good ‘what to expect’ peek into your future, based on all the things you want to do in life.

If you’re young, early in your career, or have what you consider to be a smaller net worth, you might think you don’t need a financial plan. But think again—and here’s why.


5 Reasons why everyone needs a financial plan

Some people think that a financial plan is all about investments. While investing plays a key role in your financial future, your stocks, bonds, and mutual funds are just part of your overall financial portfolio. A financial professional can help you manage your overall financial goals, which also include things like tax and estate planning, charitable giving, life insurance, and long-term care insurance.


1. Financial planning benefits all ages and lifestyles

Regardless of how old you are, how much you have in the bank, or where you are in life, you’ll find that a financial plan is a valuable thing to have. If you’re in your 20s, you have a set of goals that clearly changes by the time you’re 60 years old. A good financial plan guides you, and helps you know what to expect along the way.


2. Having a financial plan will help you work toward your goals

A financial plan is about a lot more than dollars and cents. It’s about your life, and how you want to live today and tomorrow. A solid plan can help you:

  • Identify Your Goals: These can be both financial (how much you want to have saved for retirement) and semi-financial (maybe you’d like to spend your retirement years traveling around the country in an RV). Setting goals is often one of the most difficult steps in the process for people, but one of the most important.
  • Seek to Maximize Your Money: With a plan, you will be more proactive in terms of putting your money to work for you, and more likely to take advantage of tax-advantaged savings and investment options. A plan will also allow you to adjust for changes that occur along the way.
  • Avoid Common Pitfalls: A financial plan helps you keep tabs on both your spending and your saving, to make sure they stay balanced with your goals. It can also help you avoid making financial decisions based on biases created by factors like recent news and events, fear of loss, and inaccurate mental accounting. Strategies for weathering market ups and downs and taking appropriate risks are all part of a financial plan.
  • Stay Focused and Motivated: For most people, having goals in writing keeps them motivated. A financial plan is like having a handy ‘to do’ list that helps keep you on track.
  • Measure Your Progress: A good financial plan can help reduce stress since it has measurable benchmarks that allow you to see where you stand against your goals.


3. You’ll be better prepared for emergencies

A good financial plan will always have an allowance for the unexpected expenses of life. And sometimes just having a plan itself, even if it doesn’t predict a specific emergency, helps you feel more prepared.

For example, few people had a global pandemic on their radar of future concerns. But according to a 2020 report from the American College of Financial Services, “Nearly four in ten (39%) consumers reported feeling highly prepared for the market downturn associated with the pandemic. Interestingly, what made a difference in consumers’ perception of preparedness for the crisis was having a formal, written retirement plan.”


4. Financial planning now can lead to a happier retirement later

It can be stressful not knowing how much you can spend in retirement when you don’t know how much you’ll need and for how long. Do you know someone who retired, only to sit at home because they were too afraid to spend their money? Just knowing where you stand now means your future looks brighter. Retirement is meant to be a reward for your hard work over the years. It’s important to have a plan in place that allows you to enjoy that reward.


5. When it comes to investing, sooner is better

Ever heard the term, ‘the rich get richer?’ Through the magic of something called compounding, people who invest early benefit from the fact that the interest they earn earns interest, and then keeps seeking growth over time. The return potential on investment are exponential, growing at a much steeper curve than those invested later in life. Plus, time allows you to take risks with your investments, a move that historically yields higher returns. Investing can be confusing, but a financial plan helps guide you toward your goals.


Go beyond the budget: take the first step toward a financial plan

While they certainly work together, it’s important to understand the difference between a budget, which sets goals for months, and a financial plan, which sets goals for years. Certainly, a budget is an important first step for successful everyday money management, but a good financial plan also considers strategic planning for things like long-term care, insurance, taxes, estate planning, and more. A financial plan matches your goals against your means and tells you how to line them up.

Having a budget is a good first step towards a better financial future. But having a financial plan in place really helps you know what to expect along the way.

Tempted to DIY? Financial planning can be complicated. A good financial professional will help you make smart, deliberate decisions about your financial future.

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Woman making a phone call on her cellphone.

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