How much money do you intend to have saved and invested by the end of this year? If you can't answer that question, you need a plan. A financial plan.
What Is Financial Planning?
Financial planning is the process of designing a roadmap to achieve your goals in life. But first, you must define your goals. What do you hope to accomplish and by when? They may include:
- Buying your first or second home.
- Paying for college for the kids.
- Starting a business.
- Growing a family.
- Setting funds aside for emergencies.
- Paying for vacations.
- Reducing debts, especially credit cards.
- Protecting your family in case something happens to you.
- Putting money away for retirement.
- Passing inheritance to your children.
A financial plan is a roadmap that defines how you will accomplish your goals. It assesses your present financial situation and lays out the numbers needed to reach each milepost. But, financial planning is not only about saving money. It's also about taking a close look at all the financial aspects of your life: income, money going out, investments, retirement, taxes, insurance and estate planning. The purpose of a financial plan is to coordinate all of these parts into a comprehensive blueprint to follow and meet your goals.
Why Financial Planning Is Important
If you don't have a roadmap on how you intend to achieve your goals and objectives, those dreams are just fantasies. The likelihood of ever reaching your goals is very low. A good financial plan will define your financial goals and help you decide if they are realistic. It will have clearly defined, actionable steps and tell you how much money to put aside each month and where to put it. It will show the mistakes you're making with money and find new ways to get better returns. You'll invest with more confidence, build wealth and live more comfortably.
How to Find a Financial Advisor
The choice of a financial advisor depends on how much help you think you need. If you want a detailed roadmap with financial goals and methods of achieving them, a comprehensive advisor would be the choice. This type of professional will consider everything: investments, retirement, education, insurance and other considerations. The charges are either on an hourly rate or a flat fee.
Maybe you already have your goals defined and just want an advisor for guidance on asset management. This kind of service will charge a percentage, usually 1 percent-to-2-percent of the assets under management. Be wary of those advisors who want to charge a commission on the products they sell.
Look for an experienced advisor who is a Certified Financial Planner. These advisors must pass rigorous exams and maintain continuing education to keep their certification.
Financial planning is essential for anyone who wants to get ahead in life and be able to live comfortably. Just having the vague hope that you'll put something away each month if there's anything left to put away, is not a plan and will not lead to financial security.