Financial Planning, How to make a Financial Plan, Tips
Financial planning is the practice of putting together a plan for your future, specifically around how you will manage your finances and prepare for all of the potential costs and issues that may arise. The process involves evaluating your current financial situation, identifying your goals and then developing and implementing relevant recommendations.
Financial planning is not the same as asset management. Asset management generally refers to managing investments for a client. This includes choosing the stocks, bonds, mutual funds and other investments in which a client should invest their money.
A wide range of services are included in the holistic and comprehensive scope of financial planning, which we describe below. It sees clients as real people with a variety of goals and responsibilities rather than just one aspect of your finances. It then looks at a number of financial realities to figure out the best way to help people get the most out of their lives. However, the same professionals who offer asset management services can also offer financial planning. A financial planner is effectively one types of financial advisors. Advisors can earn certifications focused on financial planning, the most notable of which is certified financial planner.
Getting a handle on the various forms of financial planning You might get a number of different services from a financial planner. These services will often be considered in concert with one another. This helps the planner create an overall plan that considers all aspects of your current situation and future aspirations.
Here are eight common services that are generally offered as part of financial planning:
• Investment planning:
Though financial planning doesn’t have to include the actual management of your assets – but most often does – it can still help with your investment portfolio by mapping out how much you should be investing and in which types of investments.
• Making plans for funding education:
If you have kids or other dependents who want to go to college, you might want to help them pay for it. Financial planning can help make sure you can do so.
• Retirement planning:
You presumably want to stop working someday. Retirement planning services help you prepare for that day. They ensure that you’ve saved enough money to live the lifestyle you want in retirement.
• Tax planning:
Financial planners often help clients address certain tax issues. They can also figure out how to get the most out of your tax refunds and pay the least amount of taxes. Certain advisors may also be able to actually help you with preparing your taxes and filing your annual taxes.
• Philanthropic planning:
It’s always nice to give something to people who need it or help a cause close to your heart. Planning your finances can help you make sure you use your money effectively and take advantage of all the tax breaks available to you. • Insurance planning: A financial planner can help you evaluate your insurance needs. Some financial planners are also licensed insurance agents and can sell you insurance themselves. However, they will probably get paid a commission, which would put them in a bad position. • Estate planning: The goal of estate planning is to make your loved ones' lives easier after you pass away. Preparing a will may be part of a financial planner’s services. Estate planning also helps prepare for any estate tax you may be subject to.
• Budgeting:
Perhaps the most important part of financial planning is creating a budget. A planner can make sure you are spending the right amount given your income and can also make sure that you aren’t going into debt.
The specific services that a financial planner provides will differ from person to person. Check to see that the financial planner you select provides the services you require. What Constitutes a Comprehensive Financial Strategy? The most important thing your financial planner will do for you is right there in their name: put together a financial planning for you and your family. A comprehensive overview of the actions required to accomplish the objectives you set for yourself is what constitutes a financial plan. These objectives could include paying for your children to go to college, giving to charity, paying for a comfortable retirement or maximizing the amount of money you pass down to your children.
Your financial planner will help you create a financial plan after talking to you about your goals and needs. Then they’ll engage in a variety of services, described in the section above, to help you achieve your goals.
How to Make a Financial Plan
A financial plan requires expertise and must be tailored to your specific objectives. Here are four key facets of a sound financial plan.
• Create pathways to each of your financial goals:
In some cases that will mean moving money into high-yield savings accounts, which as of December 2024 were offering up to and exceeding 4.75% APY. In other cases, it will mean paying down debt, starting with the highest-cost debt, such as credit card debt. It may also mean adjusting your spending.
• Establish financial goals:
Step One in the process is making specific goals. This should be inclusive, encompassing funding education, meeting healthcare expenses, creating an emergency fund, planning for retirement and creating an estate plan.
• Gauge your net worth:
Add everything you own and tally up everything you owe. This includes financial assets like stocks, bonds, IRAs, and 401(k)s as well as physical assets like homes and automobiles. The upshot is your net worth. Once you have a sense of what you’ve got, you’ll be in a position to make a plan
• Monitor cash flow:
This is often the most challenging part of making a financial plan, partly because many of us don’t pay particularly close attention to every dollar and dime we spend and partly because it may not be fun to get up close and personal with your discretionary spending.
How much money do you need to plan your finances? The cost of financial planning depends largely on the advisor you work with and their fee schedule. Advisors typically charge a single fee that is proportional to the total amount of money you have invested with them—your assets under management, or AUM—and frequently combine financial planning and investment advice services. 62% of financial advisors surveyed by Kitces said they included the cost of financial planning in their AUM fee. Meanwhile, only 22% of advisors offer financial planning services separately via a single, flat fee. This charge may depend on the complexity of the services you require, but the median cost of a standalone financial plan was $3,000, according to the same Kitces study.
Other advisors who offer financial planning may do so on either an hourly basis or as part of the retainer they charge. Rates for hourly financial planning typically range from $220 to $300, while retainer fees range from $2,300 to $6,000, the Kitces study found.
Bottom Line
Financial planning is about looking at all elements of a person’s financial life and coming up with a plan to help you as an individual meet your responsibilities and achieve your goals. It can include several services such as tax planning, estate planning, philanthropic planning and college funding planning.
Tips for Your Financial Plan
• Before even talking to an advisor, you can think about how you want to potentially divvy up your investable assets. Use this free asset allocation calculator to figure out the right balance for you based on your risk tolerance.
• Financial planning is extremely important, but it can be intimidating to do it on your own. Finding a financial advisor doesn’t have to be hard. You can get matched with up to three vetted financial advisors in your area using the free Smart Access tool. You can have a free initial call with each advisor match to decide which one is best for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
In the rush of daily life, planning for anything more than a few days in advance can seem like a headache. Naturally, one might wonder, "Does financial planning actually help?" There are two types of people when it comes to saving money: nonplanners and planners. Most of the time, nonplanners save whenever they can, perhaps contributing a small amount to a company retirement plan in the hope that everything will work out in the end. 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.
Do you sound more like the first type? If so, you're not alone: Only 36% of Americans have a written financial plan, according to Schwab's 2024 Modern Wealth Survey.1 Of the rest, 43% said they didn't have enough money to make a plan worthwhile while others said it seemed too complicated or they didn't have time to develop a plan. The bright side is a majority recognize that they can do more to stay on top of their finances.
The five ways that financial planning can help you save for the future are as follows:
1. An investment portfolio can be created with assistance from financial planning. You will be aware of your goals, the amount of time you have to achieve them, and how comfortable you are with risk if you have a financial plan. You can figure out how to accomplish each individual objective once you have a comprehensive perspective. This will necessitate investing as well as saving, which entails putting money aside for long-term needs and, ideally, growth. Saving is meant to cover short-term or emergency expenses. According to our survey, 3 out of 5 Americans are investors. With your financial plan as a guide, you'll be better able to make thoughtful investment decisions than if you move forward without a clear path and hope for the best.
2. Financial planning can lead to better money habits. What money can do for your confidence, security, and quality of life—such as the protection that life insurance provides or the peace of mind that an emergency fund can provide—is the focus of financial planning, not just investing. Having a financial plan supports sound money habits as well.
3. Planning your finances builds confidence. 76% of people who have a written financial plan say they are more in control of their finances as a result, and 96% of those people are confident they will achieve their financial goals. Financial planning allows you to set 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.
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4. Financial planning can jumpstart savings. The most common reason cited for not having a financial plan is "I don't have enough money." This is a misconception. Planning, even in small steps, doesn't require 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 prioritize goals and as mentioned earlier, provides a way to gauge success.
Percent of planners and nonplanners who have healthy money habits.
Planners Nonplanners
Have an emergency fund 65% 33%
Aware of fees and investment costs 71% 45%
Regularly rebalance portfolio 87% 63%
Never carry a credit card balance, make payments on time, or have no debt 47% 29%
5. Every personality type can be catered to when it comes to financial planning. 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.
Here are six financial planning personalities:
• The Improviser is typically quite independent and has a strong desire for independence and their own way of doing things.
• The Organizer loves lists. Categorizing and arranging everything from their sock drawer to their personal finances gives them a warm, fuzzy feeling.
• The Dreamer is a free spirit who shakes their head in confusion at all those who schedule their lives to the last detail.
• The architect is an expert in both logic and creativity. They not only imagine the future but design solutions to make it happen.
• The Philosopher, from the Greek word meaning "lover of wisdom," enjoys thinking about and solving problems.
• The Maverick, fearless and unapologetic, would rather reshape their world than try to fit in it.
How can you plan according to your personality?
For organizers, architects, and philosophers, forethought and proactively finding solutions are in your nature. Financial planning can provide a sense of safety while still allowing room for growth and improvement. Dreamers, improvisers, and mavericks may prefer spontaneity, but even a bit of planning can significantly help you achieve the freedom to live the way you want while fulfilling the future you imagine. A written plan can give you the structure you need to keep your finances in check while also allowing you to make changes as needed or use the money you make to live a carefree life. The bottom line Financial planning may sound like a chore, but it provides a foundation for understanding, tracking, and achieving your goals. Whether you're saving for a single goal, like a new house or retirement, or you need comprehensive planning and wealth management, a financial advisor can help you with identifying your priorities and creating a plan.