Why Do We Need Financial Planning

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Why Do We Need Financial Planning

Why Do We Need Financial Planning

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Maybe you want to visit three dozen countries, buy a house, retire at 55, or start a family and send your kids to college.

Chances are good that you won’t be able to reach these goals – unless you have a financial plan.

A financial plan is a document that lets you map out the life you want and how to get there.

It sounds difficult, but don’t worry. Let’s break it down so you know exactly what to expect when creating your own financial plan.

Making The Perfect Financial Plan

A recent study by Capital One found that half of Americans do not have a long-term financial plan.[1] Not having a plan to reach your goals is like following a road without a map and expecting to reach your destination.

The biggest benefit of a financial plan is that it provides you with actionable steps to achieve what you want in life. The task is up to you, but it’s easier if the steps are laid out in front of you.

Financial planning also allows you to assess where you are and what you can improve. If you don’t have enough money saved for retirement, a financial planner can figure that out. Then you can take steps to address the problem before reaching retirement age.

Why Do We Need Financial Planning

At its core, a financial plan is just a document that outlines your goals and how to achieve them.

Your Personal Financial Plan

“A financial plan will look different depending on the financial institution you work with,” says Katrina Welker, a Certified Financial Planner™ (CFP®) with the Rooted Planning Group. “At one company, we published a 30- to 50-page report that was compiled and delivered to customers. I found that overwhelming for a lot of people.”

As a result, Welker now uses a more convenient online interface with customers. The network is also interactive, so customers can see how small changes can contribute to their future goals.

According to Patrick Logue, CFP® at Prudent Financial Planning and adjunct professor who teaches other CFP®s at Boston University, every financial plan should include some of the following.

This section should provide an overview of your current situation. This can include information such as your net worth (your total assets minus your total debt), your budget, and your cash flow.

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This section describes the hidden dangers that can prevent you from reaching your goals and what you can do to protect yourself from them. In other words, insurance including life, disability, health, renters, homeowners and any other type of insurance you need.

According to Logue, “This section will address operational issues and topics such as risk, compensation, coordination, stress testing, tax issues, investment decisions, risk tolerance, risk assessment and the risks required to achieve targets.”

While similar to the investments section, here we take an in-depth look at your retirement plan. Are you saving enough to meet your retirement spending goals? How much do you need to retire? What are the best savings accounts to lower your tax bill? Should you turn your 401(k) into an IRA?

Why Do We Need Financial Planning

You may not realize it, but a large portion of your income goes into your tax bill before any money ever enters your bank account. Financial planners use this feature to reduce your tax burden so you have more money left over to meet your goals.

What We Do

Thinking about end-of-life planning and what will happen to your possessions when you die can be a little daunting, but doing it now can save you a lot of heartache later on.

“Estate planning documents should be prepared by legal professionals,” Logue said, “but financial planners can help the quarterback through the process.”

Are you planning to go back to school to change careers or want to send your kids to school to graduate without debt? If so, you should start planning now. That’s where this section comes in handy.

You can do your DIY financial planning, but there are advantages to hiring a professional if you can afford it. A CFP® can guide you through this process and provide an objective assessment of how likely you are to achieve your goals. They can also advise you on specific ways and techniques that a person might not think of.

Financial Plan Template

It’s easy to forget all the little things like having power of attorney and naming your beneficiaries. A financial plan can help you remember. Working with a financial plan means that you are more likely to follow the plan because you are already invested in it. A CFP® can help you stay accountable for the duration of your financial journey.

You need a complete picture of your entire financial situation so that you can make a solid plan. Data includes:

You have to look at every little detail because those are the tools you have to work with – and the obstacles you face along the way. Take some time to describe the entire image in detail.

Why Do We Need Financial Planning

At what age do you want to retire? Are you planning to pay for your children’s education? What kind of legacy do you want to leave your loved ones?

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Taking the time to sit down and think deeply about what goals are most important to you is key to the process. You are choosing where to go on a map.

This is the moment of truth. You have your destination in mind and you know the tools available to get there. That’s enough? If not, what does it take to get there? What changes do you need to make to reach your goals? Or do you need to readjust the goals?

This part of the personal financial planning process involves a lot of math. You should find out, among other things, when you want to retire, how long you want to live in your retirement years, how much money you have with what you’re saving now, and how much money you’ve invested to see if you can reach your goals.

This is where having a financial plan can make a difference. They will be able to manipulate all the numbers with complex tools that you might not have at your disposal. They can also show you if you are going in the right direction or not.

The Six Steps To Financial Planning

This is where the skin meets the road. Now that you know where you want to go and how you’re going to get there, it’s time to put the plan into action.

For example, you must make sure you follow your budget. You will also need to make arrangements with other financial professionals such as lawyers, investment brokers, insurance companies and your employer’s HR department to complete the plan.

In addition to creating your financial plan, remember to reach out to an expert for help and check your progress every time.

Why Do We Need Financial Planning

There are many benefits to working with a financial planner. The only downside is the price, which can be prohibitive for some people.

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For best results, look for a paid-only financial planner with CFP® certification. That way you know they’ve had the right training and aren’t working on commission, so they’re less likely to try to sell you products you don’t need.

You may only need to “do” your financial plan once. After that, it’s a good idea to check regularly if conditions change. For example, if you start a family, get a new job, or decide to change your financial goals, you should improve your plan.

“I encourage you to look at your plan at least once a year,” Welker said. “We have customers that we meet with every quarter to stay on top of changes and make sure we have time to look at different issues throughout the year.”

A budget is a plan for spending your money each month. A financial plan is more comprehensive and provides a roadmap for achieving your financial goals.

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“If someone has money and expenses, they can probably find them using Mint or a special app to help them with their budget,” Logue said. “However, if someone wants to better understand how the choices they make affect their chances of achieving their financial goals, they can benefit from a

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