Financial planning is an area of knowledge that can change your habits investing and managing your money. A financial planner or financial advisor who understands your needs can help you to develop a roadmap toward financial security.
Here are five ways financial planning can help you reach your financial goals:
1: It Gives You a Roadmap
As the saying goes, when you fail to make a plan, you plan to fail. For financial matters, this is especially true.
To reach goals like getting out of debt or saving for retirement, you need to be very specific with your day-to-day financial choices. A planner can help you look beyond merely setting goals and help you change your everyday financial habits.
For example, instead of saying you want to retire someday, a financial planner would help you to set a specific age, savings target, and an amount to save each month. Creating a plan will make it easier to track and measure your progress.
2: Investing Guidance
Another aspect of solid financial planning is in the way you approach investing and generating wealth.
Many people make the mistake of randomly picking the funds in their workplace retirement plan (like a 401k or IRA). They continue to contribute, but never look at them again or re-evaluate. If you’re not monitoring your retirement plan, you don’t know if this portfolio aligns with your risk tolerance as you get older or if it’s achieving its growth potential.
A financial planner can help you to optimize both aspects. They can assess your tolerance for risk and help create an asset allocation that will be poised to grow during the good times and help provide protection from risk during market declines.
3: Gain Exposure to Different Products
Investing in your 401k only scratches the surface of financial planning. As you work with a professional, you’ll find out there’s a whole world of products and tools that can help grow and protect your wealth, including more diverse offerings that align with your long-term plan.
For instance, some financial planners may recommend annuities to clients who are worried about outliving their retirement funds. This will help them to create a guaranteed lifetime stream of income, regardless of how long they live.
4: Manage Your Tax Efficiency
Part of good financial management is helping you make tax-efficient decisions. Therefore, comprehensive financial planning will also include methods to minimize your tax liabilities as much as possible.
For example, a planner might recommend Roth IRA conversions if you’re further from retirement. You’ll have to pay taxes on money you convert from your 401(k) to the Roth IRA, but the money will likely grow in the Roth IRA, and you can withdraw it tax-free in retirement.
5: Take Control of Your Financial Future
Perhaps the greatest benefit of financial planning is giving you control over your financial decisions. Working with a professional to build a plan will help you understand how investments work, how interest accrues, and how your financial decisions today impact your roadmap for tomorrow.
With that knowledge, you can better control where your money goes, from daily spending decisions to automated contributions to your investments, retirement funds, or bills. With a financial plan in place, you can steadily make contributions that your future self will thank you for.
All investments carry some level of risk including the potential loss of all money invested. No investment strategy can guarantee a profit or protect against loss. Working with a financial services provider is not a guarantee.
Name: Michael Bertini
Job Title: Consultant
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