Investment and financial planning can help you maintain a modest retirement — even amid COVID-19.

The latest Wells Fargo Retirement Study, underscores investment and financial planning’s role in how investors feel about their overall financial health. According to the study, those with specific financial plans indicated they save more for retirement, tap emergency sources less, and feel more in control of their finances and less stressed than those without the “planning mindset.”

“It is amazing the difference it [financial planning] can make when a client sees what the reality is and has a plan to help guide them,” Wells Fargo Financial Advisor Jenny Radke said.

“The earlier you can start planning financially and envisioning the future, the better,”

Yet, people tend to fall into two camps, according to Charles Schwab: non-planners and planners.

• Non-planners typically save when they can, perhaps putting a small amount into a workplace retirement plan, hoping that everything will work out in the long run.
• Planners generally know what they’re saving for, how much they need to put away, and how long it will take them to reach their goals.

Only 33% of Americans have a written financial plan, according to Schwab’s 2021 Modern Wealth Survey. Of the rest, almost half said they didn’t have enough money to make a plan worthwhile. Others said it was too complicated, or they didn’t have time to develop a plan.

Planning for anything can seem like a big headache and a lot of effort. It’s natural to wonder: Does financial planning really help?

Research show that it does. Here are five reasons why:

1. A written financial plan increases confidence

Our survey found that 65% of people with a written financial plan say they feel financially stable, while only 40% of those without a plan feel the same level of comfort. Fifty-four percent of planners felt “very confident” they would reach their financial goals, compared with only 18% of non-planners.

Having a written financial plan gives you a measurable goal to work toward. Because you can track your progress, you can reduce doubt or uncertainty about your decisions and make adjustments to help overcome obstacles that could derail you.

2. A financial plan can help jumpstart your savings, even with a small amount of money

The most common reason cited for not having a plan is “I don’t have enough money.” This is a misconception. Planning, even in small steps, doesn’t take large sums of money to start.

In fact, financial planning can have a profound impact on lower-income households by helping people improve their saving and budgeting habits. A written plan helps savers prioritize their goals and, as mentioned earlier, provides a way to gauge success.

3. A financial plan can help you create an investment portfolio

Your financial plan can give you the full lay of the land: You’ll know what your goals are, how much time you have to reach them, and how comfortable you are with risk. Once you have a comprehensive view, you can figure out how to reach each individual goal.

That will involve both saving—setting aside money you’ll need in the short term or for emergencies—as well as investing, which is setting aside money you’ll need in the long term and that, ideally, can grow. And with your financial plan as a roadmap, you’ll be better able to make thoughtful investing decisions—instead of heading out without a sense of direction and just hoping for the best.

4. A financial plan can lead to better habits

Financial planning isn’t just about investing; it’s about what money can do for your confidence, security, and quality of life—such as the protection that life insurance offers or the peace of mind that an emergency fund can provide. Research also shows that planning supports sound money habits as well.

Americans who have a financial plan also have healthy money habits

Source: 2021 Schwab Modern Wealth Survey

There are good investing habits, and there are healthy money habits. A written financial plan can lead to both.

5. Planning can be tailored to every personality type and investment style

Your approach to life can influence every decision you make, including those that involve your finances. By understanding the type of person you are with regard to planning, you can take proper steps toward reaching your financial goals. 

A financial plan is the foundation on which to build, understand and achieve your wealth goals and achieve financial freedom. Having a written plan can increase confidence and result in more constructive financial and investing behavior.

References:

1. https://stories.wf.com/envisioning-retirement-through-investment-planning
2. https://www.schwab.com/resource-center/insights/content/does-financial-planning-help