At some point in your life you will use financial planning.
I don’t know you, but I am confident that the previous statement is true.
It might not be in the form of a large comprehensive expensive plan, but anytime you make any life decision, and money is involved, you have used financial planning.
Buy a house, save for college, lease a car, save for a wedding, build a budget, go out for dinner, you name it, you have used financial planning.
According to Investopedia:
“A financial plan is a comprehensive evaluation of an investor’s current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans.” (http://www.investopedia.com/terms/f/financial_plan.asp)
So basically any time you choose to save or spend money, you are affecting your current AND future financial state—therefore using financial planning.
Financial Planning Benefits
Because it is so prevalent, there are many benefits to building your financial plan.
Of course, having a road-map showing you how to manage your money to accomplish all of your goals/objectives over time is the biggest benefit, but what are some others?
This post will not cover the obvious ones, but instead focus on 3 benefits that might actually be more important to you!
They are:
- Organization
- Clarity
- Empowerment
Organization
When you decide to do some real financial planning, the first part is defining your goals and your current situation.
(financial planning process defined by CFP Board – not endorsed by ifs securities)
This my friends, is VERY VERY powerful.
I’m not talking about being vague about your future or guessing how much your last heating bill was.
I’m talking about getting your hands dirty – looking at your bills, understanding your cash flow, learning about the accounts you have and most importantly defining what your future looks like.
For some of my clients the process of organizing their finances, alone, is worth my fee.
Most people have never stopped and actually thought about the inflows and outflows of their daily life.
There just isn’t any time.
Most couples I meet, have never spoken to to each other about their retirement, or if they want to start a business, or buy a vacation home.
Yes, they have had 1-off conversations, but never a coordinated talk that ends with something meaningful.
With this new found organization, you can properly evaluate financial decisions.
Things like which cable company to go with, which house to buy, when to want to stop working, etc.
Without knowing which end is up—how do you know what the best decisions is?
Organization is key!
Clarity
The next phase of financial planning is actually analyzing your goals relative to your saving ability/situation to determine if you will have any surpluses or shortfalls.
The clarity that this will provide is priceless!
Should we go on vacation next year? Should we buy the bigger house? Should we get the Lexus or Toyota?
Regularly, we make BIG financial decisions in the “moment.”
Building a financial plan allows you to take a step back and see the big picture.
That big picture should be eye opening–to allow you to spend your money wisely—which means on things MOST important to you.
Example:
Go on the big vacation!
No problem.
But now you will know how much you need to save for college.
So, its your CHOICE on what to spend your money on.
OWN THE DECISION! NO REGRETS!
Because we have limited dollars, every decision will have some affect on a future decision. You don’t have to choose to SAVE every time, but you do need the clarity to make smart decisions!
Empowerment
Oh boy, the best benefit of financial planning- Empowerment.
By going through the entire financial planning process you should be empowered to say YES OR NO to spending money without feeling guilty.
The plan gives you everything you need to say yes or no to your kids, your friends, the telemarketer, etc!
You will gain a new sense of control over your money that you never had before.
Yes – to the new big screen, but only because you are saving enough to reach your goals.
or
No – to the long vacation because you need to put more money in the emergency fund.
Either way–you are empowered to make decisions that truly reflect what is most important to you!
Final Thoughts
I hope this post made you think about financial planning differently. It’s not always about dollars and cents. Going through this process will provide you with more organization, clarity and empowerment over your money than you have ever had before.
As always, you can consult with me to discuss your current situation.
Look for future posts on making your money last in retirement and check out my recent post on the importance of rebalancing your portfolio.
Lastly click here to sign up for all great stuff The Art of Financial Planning has to offer!
Thanks for stopping by and I hope you achieve financial success!
