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Importance of having a Financial Plan- Why do I need one?

| January 30, 2019

Imagine you’re the pilot of a Boeing 747 and it’s your job to get everyone where they’re going safely.  If you completed your preflight checklist, you can assume that the flight will go smoothly as planned.  However, if you assumed everything was fine and didn’t fully complete your preflight checklist, you have just increased the chances of something going wrong during the flight.  Now, I’m certainly not a pilot, but it’s no different when people don’t have a plan established to address their needs and goals for retirement.

Let me start by saying what a financial plan is not.  A financial plan is not having 401k or other qualified retirement plan through your employer.  A 401k is simply a component of your financial plan.  A good financial plan helps define how much money you’re contributing to your retirement plan on a tax-deferred or after-tax basis (if your employer provides) and also if your employer provides a match.  Your plan should also outline an efficient way to invest your money that will work toward allowing you to stay invested for the long haul (asset allocation strategy). 

401k, IRA, insurance, 529 and other pieces are merely components of a financial plan.  All of these are like an undisciplined basketball team.  Each one is out there doing their own thing and not necessarily working as a team.  However, when you have every player on the team working in tandem and owning their “role” on the team, you will hopefully be able to accomplish much more.

A solid financial plan will help affirm the good habits and actions you’re already doing or give you a status report that you’re off-track and need to make some changes in order to work towards reaching your goals. 

Many people, understandably, are afraid to sit-down and create a financial plan.  Talking about money is not really a fun topic to discuss and can bring on anxiety and stress.  However, a strong financial advisor plays the role of coach, identifying strengths and weaknesses to create a plan that works toward long-term success.  A small commitment now can help out tremendously and save huge amounts of valued time and stress.