Often times, certain things in life get put on the back burner. For me it’s house projects; primarily because I’m just not that good at them. We all have certain gifts in life and being handy is not one of mine. But none the less, I recognize the importance of taking care of the home. If not done, then things begin to fall apart possibly costing you a lot of money in the long run.
The same thing happens with financial planning. Whether or not you like doing it (or are good at it), it is something that if not handled could cause you to face financial turmoil in the future and miss out on financial benefits today. With that said, today I will be focusing on 6 benefits of financial planning that will hopefully motivate you to take action.
6 BENEFITS OF FINANCIAL PLANNING
BENEFIT #1: ESTABLISH GOALS
Engaging in financial planning requires that you spend some time thinking about what your goals are (i.e. retire at “x” age, have “x” amount of money at a certain date, fund your children’s education, reduce your taxes, etc.). It’s similar to planning for a vacation. Sure you can just get in your car and drive, but it is likely you will have a much better experience if you plan ahead and establish goals (i.e destination, budget, etc.).
BENEFIT #2: MAKE COURSE CORRECTIONS
This is, in my opinion, is probably the most important benefit of them all. After you establish your goals, you need to track your progress toward them. Wouldn’t it be much better to make a course correction today rather than get to the end and realize you aren’t anywhere close to your goal. It’s one thing to spontaneously take a trip, but it’s a much different thing to do this with your finances. Doing so will likely leave you in a less-than-ideal financial position.
Every so often tax laws change and it’s important to determine how this impacts your goals and if you should make any changes. The Tax Cuts and Jobs Act of 2017 was recently passed and this is major tax reform that impacts individuals and businesses alike. It will impact how people pay for private K-12 school, how much tax businesses will pay, whether or not home equity loans should be used, etc. Evaluating your finances in times like these will be imperative.
Making course corrections could be as simple as saving more or saving less toward your goals. If you are not on track to reach a goal, then it would be really beneficial for you to know this information sooner rather than later. The sooner you know, the more time you have to save to get back on track. And vice versa, what if you are saving too much toward a goal? Finding out now would mean that you can keep more money in your pocket today that can be used for day to day expenses, vacations, entertainment, charity, etc.
One of the things that we do every year when we have an annual review with a client is to review every entry (in detail) in our financial planning software. This allows us to determine if we’ve made any mistakes (after all we are human) or if we need to make any changes to our assumptions. If planning is put off for years or worst yet never done, then you won’t know if there are any mistakes to correct or if there is anything to change.
Every once in a while a client will tell us that “nothing has changed in their life and that they don’t need to have an annual review”. But my response to them is always, “what if something should change in your life?”. Case in point is what if your investments have done much greater than expected. In that scenario, careful planning will allow you to determine if you should actually lower the risk of your investments. In other words, you may not need to take on as much risk any longer in order to reach your goals. Things change all the time in life whether it be tax reform, investment performance, job status, change in goals, etc. and you need to stay on top of them to determine if you should make adjustments.
BENEFIT #3: REDUCE TAXES
Many financial planning strategies intended to reduce your taxes can only be accomplished in certain years. And if you don’t regularly give attention to your financial planning, then these opportunities will likely pass. This is unfortunate because saving taxes is the same thing as saving money. And that extra money could be necessary to helping you reach your goals or live your life.
BENEFIT #4: IMPROVE NET WORTH
By dealing with your financial planning on a regular basis, you are able to increase your chances of improving your net worth. As mentioned above, there are some financial planning strategies that are only available or beneficial at certain times.
For example, if you find yourself in a low income year or a year in which you have tax deductions which you cannot fully use, then that would likely be an ideal time to move money from a taxable IRA account to a tax free Roth IRA. In other words, you may be able to put money in a tax free bucket at minimal to no cost.
Other examples which help to improve your net worth include (1) managing your debt wisely, (2) reducing your taxes, (3) periodically rebalancing your investments, (4) determining where to invest, (5) claiming Social Security at the optimal age, (6) managing stock options effectively, (7) determining how to receive your pension, and many other things.
BENEFIT #5: PEACE OF MIND
Knowing that you are on track (or knowing what to do if you aren’t on track) provides a very valuable peace of mind. If you haven’t done any planning then you are sitting in limbo with a fear of the unknown. It’s not enough to just say that you are “saving a lot of money”; there is more to financial planning than that. If you don’t believe me then just ask your spouse how he or she feels you are doing with your finances. Often times he or she will express a feeling of uneasiness. But with proper financial planning and a regular review of your finances / goals a sense of accomplishment and peace will replace the uneasiness; if not for you, then most assuredly for your spouse!
BENEFIT #6: GETTING ORGANIZED
One of the major benefits of financial planning is that it forces you to get organized. I can’t tell you the number of times we’ve worked with a client who really didn’t even know what all of their assets were. By forcing yourself to address your financial planning, you embark on a journey of discovery, which allows you to pull everything together which in and of itself is a very freeing thing (see Benefit #5).
An added benefit to getting organized is that it helps your spouse should something happen to you! We’ve had widows come to us with no idea what to do financially after their husband passed away! But by getting organized today, you can help to relieve a financial burden for a surviving spouse.
I hope that this blog post has encouraged you to consider the importance of engaging in financial planning on a regular basis. Doing so could dramatically improve your financial situation over time. And the benefits of that are you may be able to retire earlier, accomplish goals sooner, increase your standard of living, allow you to volunteer and help others, be more charitable, and have more opportunity.
If you need any help in getting organized or are wondering how the benefits of financial planning apply to you and your specific circumstances, then feel free to Contact Us.
How has financial planning benefitted you? Have you had any setbacks as a result of not planning? Have you experienced the benefits of financial planning?
Please share any stories or comments your have below.
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