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8 Benefits of Putting a Financial Plan in Place

8 Benefits of Putting a Financial Plan in Place

May 07, 2024

According to a survey conducted by The Harris Poll on behalf of the American Institute of CPAs (AICPA), in the fourth quarter of 2020, a quarter (23%) of American taxpayers did not have a financial plan.

Financial planning is a step-by-step approach to meet one’s life goals, and a financial plan acts as a guide as you go through life’s journey. Essentially, a financial plan helps you to be in control of your income, expenses, risk management, savings, and investments in an overall effort to help you achieve your goals.

There is a general misconception that you need to be wealthy before working with a financial planner. Nothing is further from the truth. In fact, financial planning can help when you’re just getting started in your career and trying to create a budget, get out of debt, begin investing, and save for big purchases.

For those further along in life, a financial plan can help guide you through life transitions and complex decisions. More importantly, having a plan in place can keep you on track toward your goals and help you weather major negative market cycles.

Here are some of the benefits of having a financial plan:

  1. While you can certainly still save money without a plan, having one gives you a better handle on your income and expenses and sets specific savings targets which tend to help you save more.
  2. Creating an emergency fund is a key component of a financial plan and works to provide you with a financial cushion should something unexpected arise. Recent weather-related headlines across the United States serve to underscore the importance of establishing an emergency fund. Essentially, you want to set aside 3-6 months of your monthly salary in a dedicated savings account that you should only access in case of an emergency.
  3. Even if your retirement date is 25-30 years in the future, the time to start planning is now. It’s estimated that you should plan to spend another 20-30 years in retirement. Not only can a financial plan help you effectively save and invest for retirement, but it can also provide you with strategies to generate additional income in retirement.
  4. A financial plan goes beyond saving and investing to incorporate your risk protection needs, including life insurance, disability income insurance, and other coverage to protect you and the ones you love.
  5. Saving for retirement should take priority over funding a child’s education. Having a solid long-term retirement savings plan in place can enable you to set aside funds for college at the same time.
  6. There is an old adage that goes, “It’s not what you make that matters; it’s what you keep.” A financial plan can help you maximize the tax efficiency of your portfolio and help reduce the impact of taxes on your investments, helping you keep more of what you make.
  7. Having an estate plan is among the most important steps you can take for your loved ones. A financial planner will encourage you to take this important step and work with your attorney to make sure your financial plan and estate plan are both aligned to meet your wishes.
  8. Because of the ongoing nature of planning, your plan will evolve with you through each stage of your career and your life.

These are just a handful of reasons why you should have a financial plan. The bottom line is that your customized financial plan can help you have greater confidence in the financial actions and decisions you make, resulting in less stress and more time to focus on other things.