The Importance of a Financial Plan
Financial plans create the foundation of good long-term financial well-being. With them, you have visibility into your current financial standing, and an evolving working model for realizing your future financial goals. Financial plans help you balance the demands of your short-term financial needs and wishes and long-term needs and wishes. If a stable retirement can be thought of as the destination, then the financial plan is the road map to help you get there.
As is the case with any kind of plan document, the value of the document has to do with its ability to provide you all the information you need to make decisions, even when things do not go according to plan.
Many of us were lured into the belief that between pensions, 401(k)s and Social Security benefits will provide for a comfortable retirement, and we are now beginning to see the frailty of those retirement plans. While undoubtedly many will indeed a good retirement based on these programs, still others will not, and irrespective, those who have a detailed plan for how they will get from the current point in their financial/work lives and where they want to be by their ideal retirement age, will have a huge advantage.
Perhaps one of the more valuable things about having a financial plan is that it allows you to see, at a glance, all the information you need in order to determine the implications of your spending decisions. As a result, it will help you to understand what steps you need to take in order to achieve a financially successful retirement. A good financial plan will show you, for example, what the long-term result will be of your taking a nice vacation with the family this year. Will the vacation mean lower contributions to college funds, less money available for dinners out? Either way, it will help you see where and how trade-offs will be made.
Financial plans are also valuable simply as documentation of all the information attached to your financial life. Account balances and history, account numbers, known upcoming expenses, investment performance, etc.