A financial plan looks at a person’s entire financial picture and breaks down the steps required to meet short-term and long-term financial goals. According to the Schwab 2019 Modern Wealth Index, only 25 percent of Americans have or use a written financial plan. When individuals adopt the process of financial planning, they can obtain a wide range of benefits. Financial planning can be applied to any area of financing, such as cash flow, tax planning, insurance planning, estate planning, retirement and investing. So why is financial planning important and what can a person expect when hiring a wealth management advisor?
5 Reasons Why Financial Planning Is Important
The future is unpredictable and events can occur that result in financial hardships. Financial planning is an effective way to help safeguard against costly incidents by having a source of backup funds to cover emergencies. This strategy can also be useful when attempting to reach important life milestones, such as saving to open a business or for retirement. Financial planning is more than just having money sitting in a bank account. It is also about maintaining financial security and investing for the future to achieve a high standard of living. It may also mean having an adequate cushion in the form of assets.
Here are just a few reasons why financial planning is important:
Effective Income Management
Financial planning can help individuals better manage their income. With enhanced income management, individuals can develop a better understanding of how much money they have and how much they will need for various expenses, such as taxes, savings and monthly expenditures. When multiple income streams are coming in from wages, investments, businesses, social security and similar sources, it can sometimes be challenging to properly distribute the influx across all goals. A financial plan provides a detailed plan of how best to use income and avoid wasted monetary opportunities.
Increased Cash Flow
Cash flow can quickly diminish without a financial plan in place. However, individuals can increase their cash flow by monitoring their expenses and spending patterns. This requires a careful budget that dictates where to put every dollar. Cash flow focuses on where money needs to go to fulfill goals and ultimately become wealthier. When creating a financial plan, cash flow should be broken down into annual expenses like debt payments, savings, insurance transactions, tax payments, regular monthly expenses and irregular expenses that may accumulate throughout the year. It is also important to list any big-ticket items that are likely to be purchased in the near future, such as real estate, vehicles or education expenses.
Security For The Future
Working towards financial security can be challenging but also highly rewarding. According to a study published by Fidelity Investments, millionaires have several traits in common including the setting of ambitious goals and acting on these goals. They know how to manage their time and understand the benefits of learning lessons through failure. Financial planning is a big part of future security and can help individuals save over time to reach their monetary goals. It is not necessary to have a lot of money to begin the financial planning process but a person does need to be dedicated to reaching their goals.
Selective Asset Building
Asset building can be an excellent way to achieve greater wealth over time. Some of the best wealth building assets include stocks, real estate and private notes secured by real estate. What makes these assets so effective in wealth building is that they have the potential to generate continuous cash flow. There are also other types of assets that can be useful for building wealth, such as mutual funds, CDs and annuities. When choosing assets, it is important to consider what liabilities are associated with each asset. Avoid assets that have the potential to become major liabilities in the future.
Investment With High Liquidity
It can be a wise choice to have funds set aside for emergencies in the form of liquid investments. However, it is important to remember that the more liquid money is, the less it earns in interest. There are several great options to consider when investing funds, such as money market accounts, high-yield savings accounts and certificates of deposit (CDs). Investments with high liquidity are a vital part of every solid financial plan as they can help a person reach their goals in a safe and efficient way.
Reach Out To The Experienced Wealth Management Advisors
A financial plan can help accelerate savings growth, reduce tax liabilities, allow individuals to live more comfortably and plan for the unexpected. Working with an experienced financial planner can help ensure that a financial plan includes all necessary components for maximum growth. To learn more about financial planning or to speak with a wealth management advisor, contact Campbell Wealth Management by calling 703.782.5058 or by requesting a consultation online.
Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may even become valueless. Carefully read all of the relevant investment product’s offering documents and information before investing. Seriously consider investment suitability by referencing your financial position, investment objectives, and risks profile before making any investment decision.
