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The 5 W’s of a Financial Plan



What is a financial plan and Why should you have one?

In its simplest form, a financial plan is a roadmap. It helps you state your goals, (the destination,) and lists the steps that you need to take, (the directions,) to reach your goals. If you don’t have a good map drawn up, you could end up wandering around in circles and go nowhere, or you could veer off and make counterproductive moves. When creating a financial plan with the help of a Financial Advisor, who is a CERTIFIED FINANCIAL PLANNER™(CFP®) professional, you can learn about, and gain access to, valuable opportunities that just aren’t easy to find, or fully understand, on your own. A Financial Advisor can not only help you piece together all of the options relevant to your situation to create your personal financial picture today, they can help you make any needed adjustments over time.


Which path should you take to reach your goals?


As the saying goes: If you don’t know where you’re going, how can you expect to get there? The same is true for preparing for your financial future.







When should you create your first official financial plan?

I don’t know that it’s ever too early, really, but once you begin your career and ‘adult’ life, you might want to start working with a Financial Advisor to create your plan. If you’re at that point in life, you may be thinking: I’m young, so I’ll wait; I’ve got time. Yep, the younger you are, the more time you have; it’s your biggest advantage, so why not make the most of it and allow it to start working in your favor right away? Even though you might not have much to contribute to your savings early-on, every little bit helps and allows you to take advantage of the compounding effect that time provides. Your plan will need to evolve and grow with you as your life changes, anyway, so you can add more to it as your income increases over the years. Many people start working with a Financial Advisor when they get married. While it is recommended to seek advice as a married couple, imagine how many steps you can take toward reaching your goals, and how much you could save and invest before marriage if you start down a constructive path right away. And, if you’re well into your ‘adult’ life and haven’t started planning yet, the answer to the ‘When’ question is: ‘Now’. The sooner you start, the better because it may be harder to play catch up than you think.


Tick tick tick!

Once you have a financial plan in place, When and Why might you want to review and revise it?

The frequency for reviewing and revising your financial plan depends on you and your situation. A general rule of thumb is to review your plan with your Financial Advisor at least once a year. This is a chance to stop and take its pulse to address the following: has your risk tolerance level changed; have any of your goals changed; have you veered off track and need help getting back, etc.? In addition, if you experience a major life event or a change to your financial situation such as, the birth of a child, gotten divorced, started a new job, retired, etc. you should probably take a look at it at that time as well because your goals may change or need to be reprioritized, or your allocation strategy might need to be adjusted.

If your plan isn’t reviewed and updated as needed, you could experience a number of consequences: missed opportunities because a new option emerges that you don’t know about; you could remain in an asset that falls in a risk tolerance level that no longer aligns with your new risk profile; if your situation has improved over time, you could experience a lack of diversification by asset class and/or tax treatment because you haven’t reallocated your resources into newly available-to-you asset classes; you could start a savings plan for your first child, but never do anything for your subsequent children because you didn’t add them to your goals and increase your savings rate, etc.


Keep in mind, however, additional check-ins to the plan itself, beyond what I stated above, could end up doing more harm than good. Sure, you’ll want to watch your individual investment accounts, etc. more closely and more often, but revising the overall plan too often could mean that you’re not giving it a chance to work. Creating a nest egg, for whatever use, takes time and consistency.


A little today can add up to a lot over time.

I realize that creating and managing a financial plan may not sound like fun to you, and it might stress you out completely, but, if you dedicate just a little time to it, once in a while, the effort you put forth today can really pay off in droves tomorrow.





If you'd like our help creating a roadmap, or your current one is stale and needs to be redone, click here to contact us.

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