Have you ever had an elaborate vision but weren’t sure how to make it happen?
Take a home renovation, for example. You might long for an open concept main floor but don’t know which walls are load-bearing and which aren’t. Opening up walls can also lead to other issues like electrical, plumbing, and existing damage which could turn into a big problem without the proper professional in your corner.
The same thing is true for a financial plan.
You might have a dream of living on the beach in retirement. That’s great, but there are so many elements that play a role in that goal. You need to make sure your cash flow and spending habits support that lifestyle. You also need to account for taxes, investments, Social Security, pension, and more to determine how you can shape this dream from an idea into reality. This is especially important for those who are changing their state of residence, as Washington doesn’t levy a state income tax.
Financial planning is a necessary part of shaping your financial and personal life but many people are falling behind in this arena. In fact, only 25% of people have any type of financial plan at all.
This is why we see the immense value of a strong, comprehensive financial plan. You need a financial plan to help you turn your dreams into a reality, to help organize your finances, files, wishes, taxes, and more to actually work for you. What is the value of your financial plan and why do you really need it to be successful? Let’s find out.
Your financial plan helps define your goals
You might think that money and finances are the heart of your financial plan. But that couldn’t be farther from the whole truth. While your finances play a key role in bringing your plan to life, the construction of your financial plan comes from your goals, values, and priorities. This is what makes your financial plan unique and different from someone else’s.
Imagine building a house without an architectural plan, only focusing on the lumber and window packages; could be a bad idea, right? While these elements are important to the construction, there are numerous other aspects to make it a working house. Your financial plan operates in a similar way. You need each piece of your plan from the finances to your goals to make a well-functioning strategy for you.
While you might want to downsize to a smaller house closer to family in retirement, another couple might be passionate about traveling the world. Each of these retirement visions comes with a different financial set-up. What you do with your finances is centered around your short-term and long-term financial goals.
This makes the process of goal-setting so important to our process. We love to learn about the things that are most important to you and your life and help devise a plan that supports those unique goals. We also seek to understand why these goals are important to you. Your reasoning ties back to your values and general outlook on life, which can enhance the goal-setting process.
Without a financial plan, you might not spend the time to create sophisticated financial goals both now and 5, 10, even 20 years from now. A plan can provide the structure you need to think about your finances in a different way. When you structure your financial habits (spending, saving, investing, etc.) around your financial goals (financial independence, travel, relocation, etc.) you will find that can help enrich your financial plan.
Remember, your needs will grow and evolve. Creating a financial plan is not something you do once and stick it on the shelf to gather dust. On the contrary, it is a living, breathing document that should be updated as things change.
It brings context to your money
Life doesn’t exist in a vacuum. Every decision and action you make impacts something else, and the same thing is true for your financial life. A strong financial plan can give context to the role that money plays in your life. Think about it in terms of a family vacation.
If you were looking to plan an epic family trip, one that would make memories to last a lifetime, you wouldn’t just lock up your house and hop on the first plane with an available seat. Instead, you would think about the following:
- Destination
- Lodging
- Type of travel (airplane, road trip, train, boat, etc.)
- Timing
- Activities
- The guest list
- Weather
- Costs
- Time of year
You wouldn’t set off on a family adventure without nailing down these details, and yet many families will spend more time planning for a vacation than for their retirement years.
Studies show that a written financial plan can have a positive impact on your financial life, yet only 38% of U.S investors have one. This same study also found that investors with a written plan were more confident that the plan was designed to help them reach their goals.
A written financial plan can help you see your entire financial picture and create a strategy to better make your money work for you.
Financial plans improve your decision making
When you have a solid financial plan, you have a better idea of understanding the full scope of your financial life. You understand how your investment plan is set-up, have a clear path for spending, and know what income channels you have working for you. This in-depth knowledge can actually help you improve your use of money in the future.
Your financial plan can help you make better financial decisions with your eyes wide open especially on large life shifts like
- Retirement planning
- Estate planning
- Buying a house
- Relocation
- Charitable planning
- Major purchase (home remodel, education, gifts, etc.)
When you know what your financial horizon looks like, you will be better prepared to put these larger purchases in the context of your financial life. For example, you will think about the full picture of buying a home, not only the mortgage payments but also property taxes, relocation fees, realtor expenses/commission, insurance, and more.
It wards against uncertainty
There will always be unexpected things that come up in life. It might be a loss of a job or prolonged hospitalization. These expenses can add up. Without a strong financial plan and resources, you might be forced to put these expenses on credit cards, take out loans, or rely on the help of family and friends.
But if you have a healthy emergency fund, you are able to protect yourself and your family from additional debt on top of an already stressful situation. This is just one example of protecting yourself from unforeseen issues. The same thing can be said for the stock market. The market is volatile and will experience shifts but the proper risk management, allocation, diversification, and time horizon can better address these issues.
Here at TFS, we believe in in a little something we call certain of uncertainty which, simply means there will be uncertainty in our lives, and we are certain about that. Creating reliable strategies and a smart money philosophy to manage proper funding for those unforeseen moments is fundamental to financial wellness.
A financial plan is important during times of uncertainty because it can help keep you grounded and focused on what you can control.
A TFS Case Study
To better illustrate the way we approach financial planning, we wanted to dive into a case study. This story depicts an interaction we recently had with a prospect. They asked us a question we hear quite often,
“If I work with you, how much return can I expect?”
Our response? “What does your plan require?”
Now, this might not be the typical answer from every advisor out there. We aren’t here to time the market or promise returns. We are here to help people create a plan that will help them use their money to live the life they want.
Why might we answer this prospect’s question in such a way? It deemphasizes the discussion on returns and shifts it to a more intentional place about a financial plan. Without a plan, people tend to assume higher risks than they may actually need to achieve their goals. The increased risk most often leads to increased volatility, which can spook investors especially when they don’t have a strong plan to rely on.
Our approach is to determine our client’s goals and then assess the return needed to pursue them. This process can help ensure that their risk levels are aligned with the client’s needs, making it a truly custom experience.
This way, we don’t focus on high swings or padding returns, simply structuring the client’s finances in a way that supports their needs, goals, and values.
It’s all about you
Your financial plan is all about you: your goals, needs, wants, and desires all with a direct line back to what you value most. It takes all of the things that are most important to you and works to set up and manage your money in a way that enhances those aspects of your life.
A comprehensive financial plan is designed to bring safety, balance, and strength to your financial and personal life. Our team is passionate about crafting a plan that helps you use the tools and resources available to enhance your life. Ready to see how much balance a financial plan can bring to your life? Set up a call with our team today.
