Written Financial Plan

“Establish a financial plan based on your goals.”

Research continue to show that creating a written financial plan is more effective and beneficial than simply thinking or talking about your goals. The research finds that more than two-thirds of people who have a written financial plan say they feel financially stable, whereas just 28% of those without a plan feel the same way, according to Schwab’s 2019 Modern Wealth Survey. 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.

“Long term thinking and planning enhances short term decision making. Make sure you have a plan of your life in your hand, and that includes the financial plan and your mission.” Manoj Arora, From the Rat Race to Financial Freedom

Multiple surveys show that less than a third of Americans have a financial plan in writing. And among those without one, 2 in 5 Americans say it’s because they don’t think they have enough money or assets to merit a form and many say simply that it’s too complicated or they don’t have enough time to develop one.

But in reality, financial planning is not inaccessible, too expensive or too complicated. A written financial plan is simply formalizing a person’s short-term goals and long-term goals and determining a path with saving and investing to achieve them.

Planning 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 provides a way to measure success.

Elements of a financial plan:

Create short, intermediate and long term goals
An emergency fund
A budget to determine cash flow and calculating net worth
Paying down and avoiding debt
Health and disability insurance
Start saving and investing early, pay yourself first and put it on automatic
Pay yourself first
Saving and investing for retirement and/or college
Saving and investing for shorter term goals like vacations or a home purchase
Trusts, wills and estate planning

After creating your financial plan, you are bound to have times when you don’t reach your goals or you diverge from your plan. But, just like with a diet, if you make a bad food choice, it doesn’t mean you throw out your new way of healthy eating or exercising. Same thing with financial plan.

Planners demonstrate better money and investing habits

For those looking for a way to stay the course, Schwab’s survey shows that more than 60 percent of Americans who have a written financial plan feel financially stable, while only a third of those without a plan feel that same level of comfort. Essentially, those with a financial plan maintain healthier money habits when it comes to saving.

A financial plan leads to better habits since financial planning isn’t just about investing. Many sound money management habits and financial decisions are more easily explained in quality-of-life terms—such as controlling consumer spending, the security that life insurance offers, or the peace of mind that having an emergency fund can provide. There are healthy money habits and there are good investing habits; a written financial plan can lead to both.

“Spending is not the enemy, but it’s important to balance saving and spending so we can both enjoy life’s experiences along the way and achieve long-term financial security.”

Creating financial goals and a financial plan isn’t going to help unless you stick to your plan over time. One good way to do that is to create a detailed quarterly schedule of money-related tasks.

Successful planning can help propel financial security and net worth for those who stick with their plans. Research shows that those sticking with their financial plans achieved an average total net worth three times higher than those who didn’t plan.

References:

From Gratitude to Greatness: Brownlee Global's Path to a Purposeful Life

Guide and Educate Individuals How to Build Long-Term Wealth, Better Manage Their Money, and Achieve Financial Freedom

Planners demonstrate better money and investing habits

Like this:

Related