Do you have a financial plan? A real, written plan with goals, targets, and timelines, not just “I plan to stay out of debt this year?” If you have no such plan, well, at least you have plenty of company.
According to Charles Schwab, only 25 percent of Americans have a written financial plan. The good news: Schwab’s 2018 Modern Wealth Index survey shows that investors with a written plan tend to have greater fiscal discipline and better money habits.
A written financial plan is the monetary equivalent of an exercise buddy who works out with you, motivates you to stay on track, and occasionally swats Oreos out of your hand.
It serves as a template to remind you of your financial goals and keeps you from frivolous spending (the monetary equivalent of Oreos).
Why You Need a Financial Plan
The Schwab poll finds that, compared to non-planners, planners are far more likely to pay bills while still saving money every month (75 percent to 33 percent).
They are also more likely to have an emergency fund (65 percent to 24 percent), life insurance (62 percent to 39 percent), and an overall feeling of financial stability (62 percent to 32 percent).
Conversely, only 38 percent of planners live paycheck to paycheck, as opposed to 68 percent of non-planners.
Unfortunately, financial planning is perceived to be a rich person’s tool. Approximately 45 percent of non-planning respondents believe they don’t earn enough money to warrant a financial plan.
Comfort Versus Wealth
Given that respondents define financial comfort as $1.4 million on average and wealth as $2.4 million, many Americans look at their accounts and conclude that financial planning is not for them.
That premise couldn’t be more wrong. If you have less money, isn’t it even more important that you plan and use your money wisely?
Financial planning doesn’t have to be complicated – and it doesn’t even require professional services. While it’s best to consult with financial professionals, and low-cost options are available, just under half of survey respondents created their financial plan without professional financial assistance.
Other survey roadblocks to financial planning include a lack of financial understanding or lack of confidence. It never occurred to 20 percent of non-planners to make a financial plan, and another 20 percent claimed to not know how to make one.
If you’ve read this far, you know the importance of a written financial plan – and if you don’t have one, we can provide a simple guide to starting one.
Start by defining your goals. Are you saving for a home? Planning to send kids to college? How about retirement and emergency funds? Do you plan to pay down debt? Once these goals are written down and quantified, you can prioritize your goals and start funding them.
Create a Budget
To allocate money to any goals, you need a budget that provides a surplus. Lay out your monthly income and regular expenses. Don’t forget to include annual expenses, such as property taxes.
If you don’t have enough of a surplus to meet your goals – or you don’t have a surplus at all – look for places you can trim your spending and ways to increase your income. Reconsider your goals if they don’t seem realistic.
Now comes the tricky part – executing your plan. It takes willpower and financial discipline to avoid overspending and create savings. Use your written plan to remind you that you have greater goals. Plenty of online resources are available to help you adjust budgets and plans.
If you need more help with financial planning or executing your plan, seek the assistance of a qualified financial professional. They aren’t just for millionaires.
This article was provided by our content partners at MoneyTips. Photo ©iStockphoto.com/gpointstudio
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