Originally published June 2020
Updated February 2022
Add this to the long list of things I hear that drive me crazy: "Financial Planning is just for rich people."
Let me say it louder for the people in the back: In general, you don't become rich (or wealthy) without planning to do so.
I understand that you may be skeptical, so please allow me to break down my passionate argument for the value of Financial Planning in your long march toward wealth.
Before I start, a disclaimer: If you do not earn sufficient income to support your basic needs, no amount of Financial Planning will allow you to become wealthy.
In this post I'm speaking to those with the means to support their basic needs while having something left over to save for the future.
You can watch the video below for a summary of this post or scroll down to keep reading.
Let's define "rich"
This discussion is useless without a definition for the word "rich."
I actually prefer the word "wealthy" because it fits a little better. Growing "rich" seems to imply the pilling up of assets for the sake of piling them up.
If all you're doing is pilling up assets, you'll never really know when you're finished.
In my mind, I frame growing "wealthy" as the accumulation of assets sufficient to fund that which makes a person most content.
This is your "enough," and your "enough" is unique to you. (A herd of these guys on a piece of land in the Texas Hill Country is my personal enough.)
Charting a path
Picture this: it's Friday night, and you've got a hot date with your spouse.
This is your only date night this month, and you need to make sure it's special.
What's the likelihood that you'll spend some amount of time planning for this magical night of romance?
I must assume that if you want to stay happily married, the probability is high.
Same idea with your annual vacation - you'll likely do at least some research before booking your flights, hotel, and activities.
Because you have a specific goal or vision for the result you want to achieve.
Date night should be romantic. Your vacation should be refreshing. You know intuitively that you can't achieve these goals without at least some planning.
So why on earth would you think that growing wealthy can be done without a plan?
Now you're thinking, "I put money in my 401(k); I'm good to go."
Maybe you are - but there's a good chance you aren't.
The path to becoming wealthy is strewn with hazards. Here's a short list:
Lack of clear goals
How will you get there if you don't know where you are going?
One of the most valuable elements of the Financial Planning process is goal setting.
Right now, ask yourself what your most immediate financial goal is.
Can you define it in a specific manner that includes a way to measure your success or failure, has a deadline, and is reasonably achievable?
An illustration may help.
My next financial goal is to buy myself a 40th birthday trip - the one I didn't get to take in 2020.
The trip will happen the first full week of December 2022. I will travel to Ecuador, and I expect the trip to cost at least $6,000. I intend to pay for the trip from current income.
If you can't get that specific with your goals, your chance of reaching them is quite poor.
Saving too little
We could file this under the heading above, but I'll give this item its own section.
If you aren't clear on what your goals will cost, you may be underestimating the amount you need to save each year.
Nearly every first draft of a Financial Plan that I do for a new client fails.
Because as humans we are really bad at estimating what stuff is going to cost over long periods of time. We are very good at near-term stuff; quite bad at long-term stuff.
Misunderstanding your Risk Tolerance
I wrote about the topic of Risk Tolerance back in May of 2020 because an investor's ability to tolerate risk is a key driver of any Financial Plan.
Your Risk Tolerance impacts the amount you need to save for your goals and should dictate how your savings are invested.
Failing to understand your Risk Tolerance can lead to disastrous mistakes.
On the one hand, you may fail to take enough risk and end up falling short of your goals. Or you may take too much risk and set your plan back by months or years if you panic in a rough market.
You are a human, and as such you are vulnerable to a host of cognitive biases, errors in thinking, and potential bad behavior (often driven by fear or greed).
It's well known among financial professionals that the average investor earns below-average market returns.
One of the best defenses against our own human frailty is having a Financial Plan you can turn to when markets are challenging (or your own short-term thinking starts to get the better of you).
Failing to optimize
To incentivize individuals to save and invest for the future, the U.S. government has embedded a variety of goodies in the tax code.
That sounds great, but you need to understand where the goodies are and how to use them well before you decide you need to use them.
For example, let's say your CPA tells you on April 13th that you need to open and fund a Traditional IRA to get a tax break. Sounds good to you - but when you start calling around to open and fund an account, you learn you're too late; there isn't enough time before the April 15th deadline.
A bit of planning would have given you adequate notice to open and fund that IRA with plenty of time to spare.
Most things in life worth doing are worth doing right.
Trying to grow wealthy without a Financial Plan is a bit like heading out to a party without knowing the address. If there were a more direct path to becoming wealthy, why wouldn't you take it?
One last time: Financial Planning isn't just for "rich" people - it's for people who wish to become rich.
Ready to start building your wealth?
 Nick Magguilli from Of Dollars and Data has a great post on this topic here.
 A deep dive on this topic can be found in Brian Portnoy's Geometry of Wealth