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Do I Need a Financial Plan?

August 15, 2023

Does everyone need a Financial Plan drafted by a Financial Planner?

No. Not everyone needs a Financial Plan, and not everyone needs to work with a Financial Planner.

You didn’t think the post would be that short, did you?

I take a great deal of pride in my work and believe wholeheartedly in the value of what I do. But I also recognize that not everyone needs me (or someone like me). But some key turning points and circumstances could lead you to need services like mine.

But first, what is a Financial Plan anyway?

What Is a Financial Plan?

Let’s first define what a Financial Plan is.

A handful of definitions are floating around for what a Financial Plan comprises. In its simplest form, a Financial Plan is a tool for decision-making about spending, saving, investing, and insurance coverage with a view to achieving a specific set of goals over time.

For me, a Financial Plan is a tool to maximize your enjoyment of finite wealth over time.

“A Financial Plan is a tool to maximize enjoyment of wealth over time.”

The most important element of any plan is the goals it addresses. The entire plan is centered around them, and they must be well-defined, achievable, and relevant.

The other elements of a Financial Plan are the financial resources available to achieve those goals, a few educated assumptions, and information about the amount of investing risk an individual or family wishes to take.

What might drive you to need this kind of tool?

Read: Want to be Wealthy? Then Plan On It

Life Changes in Financial Planning

One of the biggest reasons people seek out a Financial Planner to create a Financial Plan is in anticipation of, or in the wake of, a major life change. That change might be positive, like marriage, retirement, the sale of a business, getting a new job, or the arrival of a new family member. It might also be a more difficult change, like divorce or the death of a spouse.

All these circumstances have in common the need to navigate something completely new where the stakes are higher than before.

In these circumstances, Financial Planning answers questions like:

“Am I going to be ok?”

“Can I afford to retire?”

“How can I get my new family off to the best start possible?”

“How can I keep my family secure if I die or become disabled?”

“How can I make the most of my new income and benefits?”

“Will I be able to afford college?”

A carefully crafted Financial Plan will help answer those questions and provide you a guide for day-to-day decision-making.

The Complexity requires Financial Planning

When you are in your youth, your financial life is often simple, and your goals are often simple too.

If all you want to do is build an emergency fund and save for a home down payment, a full-blown Financial Plan would be of limited use.

In this case, the kind of plan you can sketch on the back of an envelope will get you where you need to go.

But as we grow and mature, our lives often become more complex. At a certain point you’re likely to have competing goals that unfold over vastly different periods of time.

As your resources grow, your capacity to save and invest will increase, so you’ll need to choose and monitor investments. As your wealth grows, you’ll likely want to protect it and ensure it can be passed to those you care for.

At a certain point, DIY Financial Planning may not be enough.

“DIY Financial Planning may not be enough.”

When things get too complex, a formal Financial Plan drafted by a Financial Planning Professional may be called for.

Read: Three Reasons You Might Need a Financial Advisor

Better Financial Decision Making

Being human in the modern world means making dozens of decisions, large and small, every day. It’s not uncommon for us to make sub-optimal choices that set us back.

Maybe you ate the cupcake you knew wasn’t on your eating plan, skipped your afternoon run, bought that bauble you can’t really afford, or sold investments in a panic because the news got too scary.

A Financial Plan can’t help you make better eating and exercise choices, but it can help you make better financial choices. The fewer mistakes you make, the more likely you are to reach your goals.

“The fewer mistakes you make, the more likely you are to reach your goals.”

More importantly, there’s something comforting about knowing you’ve made the right choice because you’ve taken the time to validate it with your Financial Plan.

For example: Let’s say you want to retire at the age of 60, but you also want to live out a dream of taking a three-month trip around the world while you’re still young enough to enjoy it.

You could take that trip, consequences be damned, and worry the whole time if you just shot yourself in the foot.

Or you could test the impact of taking that trip on your Financial Plan.

The results may say that if you take the trip, you should plan to work one year longer or change your savings habits. Armed with that information, you can make a guilt-free, well-informed decision with a much lower potential for bad outcomes.

See? Maximum enjoyment of finite wealth.

Talk to a Professional Financial Planner

If you are thinking that you might benefit from a Financial Plan, the next step is to talk to a professional financial planner.

Schedule Your Free One-Hour Consultation