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Money is a tool; a tool that can help you shape, design, and live the life you want. Way too often, people talk about money as the destination, when it’s really a medium to facilitate the journey. Financial planning can take your money game up a notch by bringing clarity, strategy, and intention to your financial life. It can illuminate your priorities and get you thinking about money differently. A healthy financial plan gives you the tools to take control of your finances and start living your life with passion, purpose, and freedom.
So what’s the value of a financial plan? Let’s take a look.
Provides Confidence and Clarity
One reason money can be so hard to manage is we don’t talk about it enough. Society tells us money is a taboo, private matter. We avoid it with our parents, change the subject with our partners, skirt the details with our friends, and are embarrassed to bring it up at work. But that’s not how it’s supposed to be.
Financial literacy doesn’t come out of thin air. It has to be discussed and fleshed out to get right.
Financial planning can give you the tools, resources, and confidence to conduct your financial life on solid footing. This information not only illustrates where you are, it also provides intentional moves to get where you want to be.
A financial plan looks at your assets and liabilities, short-term and long-term needs, as well as your goals to structure your finances in a way that suits you. Want to retire early? A financial plan can define your current savings plan, investment allocations, risk profile, desired lifestyle, projected expenses, and more to achieve that goal.
Financial planning shatters many allusions you might have about how money works. The right plan can help you invest, make better spending and savings plans, and develop healthy financial habits. It gives you the confidence to use your money in the best ways possible.
Prevents Costly Mistakes
Losing money is never pleasant, especially when it could have been avoided. Financial planning can help bypass mistakes and unnecessary errors in your money life. This could come in many forms:
- Negative spending habits
- Little to no emergency fund
- Inadequate investment vehicles
- Improper risk management and insurance coverage
- Making emotional financial decisions
- Overpaying on taxes
- Acquiring unnecessary debt
- Incurring penalties and fees
Let’s look at a few of these examples more in-depth.
Tax Planning. A proactive tax plan can save you thousands of dollars every year. It can help leverage your investments, make the most out of capital gains and losses, and lower your taxable income. You can accomplish this task in several ways like strategic charitable giving, maxing out your retirement accounts, tax-loss harvesting, and more. Without a tax plan, you could increase your tax bill and potentially incur needless penalties.
Financial planning brings essential tax-efficiency to your financial choices. With the right plan, your tax needs are baked into your financial choices.
Emotional Investment Choices. A top mistake we’ve seen this year is investors making emotional decisions in the market. Volatility is one thing, but the bear market in March was tough for many people. Even those with a financial plan struggled to stick to their carefully crafted strategy. Emotional decisions, especially investment ones, can be quite costly. Pulling yourself out of the market could lead to an onslaught of tax responsibilities and derail your progress.
When you have a financial plan and an advisor you trust, you’re in a better position to weather market ups and downs. You will have an investment strategy that already accounts for your risk tolerance, capacity, time horizon, and goals. While you’ll still experience volatility, you’ll be in a better position to handle those swings.
Inadequate Emergency Fund. Your emergency fund protects against unforeseen circumstances like job loss, medical bills, unexpected travel, home malfunctions, and more. During the pandemic, many people drew from their emergency fund to cover an income dip or medical expenses. Without this cash reserve, you might have to resort to credit cards, personal loans, or family loans which could put additional strain on already difficult times.
A healthy financial plan ensures all of your bases are covered in an emergency. This means having at least 3-6 months of living expenses earmarked in a highly-liquid account, maintaining proper insurance coverage, and building the right cash-flow management.
Gives Access to Funds with Lower Fees
Let’s face it, investors hate fees. Fees can comprise a significant portion of your investment portfolio, especially for novice investors who may not know the fee structure of certain mutual funds and/or broker/dealer investment strategies. But these elements are crucial to keeping fees low, so you can enjoy more of the returns.
A financial planner can illuminate these fees and carve a path that makes the most sense for you. Your professional can explain different management strategies and highlight the best ones for your needs. Most advisors who promote low-cost investing operate under passive investment management.
Instead of picking and choosing individual investments with high hopes of timing the market, passive management zeroes in on underlying indexes and benchmarks like the S&P 500. This strategy tracks these indexes and builds a portfolio that mirrors its activity. Since the funds are tracking an index, costs are much lower. Why?
- The advisor isn’t cherry-picking investments. That cuts down on time and advisor fees.
- Most funds have a trading fee. The less buying and selling, the smaller the fees.
- Access to lower-cost investments like index funds and ETFs.
Helps You Negotiate Raises
Are you long overdue for a raise? Asking for a raise can be an uncomfortable subject, but it’s critical to take control of your financial wellness. Our team knows broaching a pay raise – even when your experience and skills warrant it – can be a challenge. This is especially true for women.
A Randstad survey found 60% of women have never negotiated their salary with an employer and would rather look for employment elsewhere. But this number isn’t from lack of trying. A Marketplace-Edison Research poll found that men and women both ask for raises with similar frequency, 37% for men and 36% for women. However, only 72% of women who ask for a raise get one, compared to 82% of men.
With women already at a disadvantage with the wage and wealth gap, it is essential to advocate for their value and worth in the workplace. Here are some tools to help you ask for the raise you deserve:
- Do Your Research
- What is the market salary for your position, skills, and experience? What is a comparable salary internally but also externally? Knowing what other professionals at your level are paid can provide a benchmark for your salary.
- Communicate Your Accomplishments
- Even though you know the value you bring to the office every day, it’s vital to accurately communicate those accomplishments to your superior. Give specific examples, point to demonstrated success, and find examples of positive impact and growth.
- Set Yourself, and Your Company Up for Success
- Let your boss know you want to schedule a meeting to discuss your position and compensation. This courtesy will give you both time to prepare.
- Know what you are willing to walk away with.
- Don’t sell yourself short.
A raise can have a notable impact on your finances. It can help you save for your future, like increasing retirement contributions or investing in the market. A raise can also impact short-term goals like building an emergency fund, supplementing tuition payments for your child, or funding that dream vacation.
Affords Peace of Mind
Money can be stressful. Striking the right balance between saving, spending, and investing is a challenge, but the right advice can put you on the path to success. Managing money has many moving parts, making it critical to have someone in your corner to help structure your finances in a way that’s true to you.
Financial planning offers peace of mind, a state easily forgotten in the whirlwind this year has been. With a financial plan you can rest easy knowing your money is working for you, and knowing you’re taking care of your present and future needs.
We love helping people take control of their money and find financial freedom. Get in touch with us today.
Related: 5 Simple Steps You Can Take To Change Your Money Mindset