Broker Check

Are We There Yet? The Importance of Financial Planning

| September 29, 2020

Did you notice that the last time you got on a scheduled airline that the flight had a planned destination? Of course! Sounds simple, right? Airline flights almost always get to where they are going because they know where they are going and have a plan to get there. But what if they did not have a planned for destination and just took off and started flying? What a mess! What’s that have to do with your financial planning? Well, it’s hard to make decisions and know if you are making progress if you don’t know where you are now, know where you want or need to be, and mapped out how to get there.

Financial planning is an often misunderstood term. Some people think of financial planning as solely encompassing their investments and nothing else. In reality, financial planning encompasses every facet of a person’s financial life including cash flow management, insurance, investments, estate planning, and tax planning. A financial plan is a formalized review of your financial goals and objectives. It is a working document that should be reviewed periodically and be updated for various life changes. Unfortunately, many people put off formal planning, when in reality, they could have greatly benefited from having a plan in place early in life.

So the question becomes, who can benefit from having a financial plan? Because financial planning can touch on so many aspects of a person’s life, the answer is pretty much everyone can benefit from some form of a financial plan. Not everyone will need a comprehensive plan, but most will need help with at least a few questions that come up. A financial plan can help provide an objective, outside point of view that is based on facts rather than emotion.

Take an example of a young, single professional a few years out of college. Could they benefit from a financial plan? Absolutely! Even though they may not have a sizable portfolio yet, they can benefit from guidance on such things as creating a budget, building an emergency fund, how best to pay off an student loans or consumer debts, maximizing employer benefits that may be available to them, determining how much they can afford to invest, and making sure they have the proper coverages on various types of insurance.

Once a formal plan has been put into place, it becomes something that can be changed and updated as life changes, sort of like a mid-course correction. Take for example the young professional mentioned above. If down the road they get married and start a family, now they have more things to plan for. Their plan may seek to answer questions like: How much house can we afford? What is college tuition going to be in 18 years and what are ways to save? Can we afford to live on one income if one of us loses our job or wants to be a stay at home parent? Is our current savings plan enough for us to be able to retire on our terms?

A financial plan is not a cookie cutter document. It should take an in-depth look at your current situation and what your goals are. There is not a one size fits all approach.  Just like airline flights, everyone is starting from a different place. Unless we financially map out where we want to be and how to get there it’s hard to answer the question: Are We There Yet?

Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. LPL Financial and Croxall Capital Planning do not provide tax or legal advice.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.