A recent Schwab survey asked how confident people were about reaching their financial goals. Over half of Americans who have a written financial plan said they feel “very confident” about reaching their financial goals compared to only eighteen percent of those without a plan. And guess who has healthier money habits when it comes to saving and investing? Those with a written financial plan of course! Ah, yes, you may be saying, there she goes again. Because if you read my column regularly, you know that I’m a big believer in the importance of financial planning for everybody. And with October being financial planning month (as well as Fall, Oktoberfest, and Halloween), I can’t help but make my yearly push for this very important tool. But this time rather than just repeat all the compelling reasons why you should have a financial plan, I want to highlight some of the main reasons people give for not having one, and offer my rebuttals. So if you’ve yet to be convinced—or just haven’t gotten around to it—I hope you’ll see something here that motivates you. Top five reasons people give for not having a financial plan—and why you should
- I don’t have enough money to need one—This is the number one reason I hear for not having a financial plan. My reply? If you don’t have a lot of money, financial planning may be even more important because it can help you identify and prioritize your goals and begin to take measurable steps to achieve them. Think of a written financial plan as a roadmap that can help you spend wisely, control debt, save and invest smartly, and provide the shortest and safest route to where you want to go financially. If you’re starting small, that’s totally fine. You don’t have to have a lot of money to get on the road. No matter how much money you have, you want to make sure you’re going in the right direction.
- It seems too complicated—It’s not. A good financial plan isn’t something esoteric that only a financial whiz can understand. On the contrary. Financial planning is designed to answer real-life questions. For instance, are your goals realistic? How can you prioritize spending? Can you save for a down payment and the kids’ education at the same time? When can you retire and how much will you need? Wherever you are on the wealth or life spectrum, these types of questions will help you build a personalized financial plan. And the answers can provide peace of mind and actually simplify your life.
- I don’t have the time to develop one—Yes, you’ll have to invest some time to create a financial plan but it doesn’t have to be a burden, especially if you work with a financial advisor. Ideally, financial planning is a collaborative process. An advisor can help you zero in on the questions, explore different answers, and come up with a specific plan of action. Might it take a few hours to dig into the details? Yes. The actual amount of time will depend on the complexity of your financial situation. But think about how much planning you did for your last vacation. Your financial future deserves at least the same amount of effort. Plus, today’s technology and financial planning tools make it easier than ever. But however long it takes to develop a plan, if it helps you achieve your goals and gives you a sense of financial security, it will be time well spent. And in the long run, a financial plan can actually save you time—and money!
- Nothing’s happening in my life to require one—It’s true that a major life event—marriage, divorce, new baby, buying a home—can make you rethink your finances. And if you’ve never had a financial plan, these occasions would be a great time to create one. But why wait? Having a financial plan can make these transitions easier and help make sure your plans stay on track. To me, financial planning isn’t a one-time thing. It’s a dynamic process that evolves as your life and goals change. But you first need to get started—and there’s no time like the present.
- It’s too expensive to get help creating one— If cost is your main concern, there are online advice services that can make it easy and inexpensive for do-it-yourselfers. However, there can be substantial benefits to working with a financial planning professional that make it worth the additional cost. Often, financial planners work in teams with different subject matter experts. These trained eyes will help you uncover obstacles to reaching your goals and help identify gaps and unseen risks. Even a one-time professional consultation can give you the benefit of a second opinion to either confirm you’re on the right track or offer alternate strategies. Fees for financial planning services vary and can range from hourly to a flat fee. Many financial professionals offer an initial complimentary consultation so you can discuss what you’re looking for, what’s offered, and the fee structure. Subscription based planning is an increasingly popular option. The cost depends on the type and level of advice you want. The best and most important reason to do it now There’s no “one-size-fits-all” when it comes to financial planning, but the process usually covers saving and investing. Comprehensive financial planning looks at all aspects of your financial life and can also include things like retirement, insurance, and tax and estate planning. Best of all, you’ll get a personalized plan of action. To me, that’s a pretty compelling reason. But that’s not all. Going back to the survey I mentioned, respondents with a plan are more likely to have a 3-month emergency fund, not carry credit card balances, make payments on time, and have a portfolio that reflects their goals, time frame and feelings about risk. Most importantly, having a plan can make people feel financially stable. To me, that’s the best counter argument to whatever your reason for not having a financial plan. I rest my case. Have a personal finance question? Email us ataskcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries,contact Schwab. Disclosures: The Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation that is not part of Charles Schwab & Co., Inc., or its parent company, The Charles Schwab Corporation. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers are obtained from what are considered reliable sources. However, their accuracy, completeness or reliability cannot be guaranteed. COPYRIGHT 2021 CHARLES SCHWAB & CO., INC. MEMBER SIPC. (#1021-1A2H)
