8 Financial Planning Myths
08 Mar 2017
Many Americans lack a written financial plan. While there are a variety of factors that play into why more Americans aren’t planning for their financial future, some of it can be explained by common misconceptions we have about financial planning. Here are 8 of the top financial planning myths.
1. Financial Planning is Only for People with a lot of Money
Many people make the mistake of believing that financial planning is only for the wealthy. In reality, a financial plan can be just as helpful, if not more, to those with lower incomes. A successful plan can be the gateway to a higher net worth and help you build wealth over time. Planning is about helping you achieve your short and long-term financial goals, no matter how much money you have.
2. I’m Too Young For a Financial Plan
Similar to the first myth, many younger people think they don’t make enough money or have enough assets to require a financial plan. However, establishing a plan earlier in life can help build a solid foundation and reinforce good financial habits. Young people have time on their side – investing early, even if it’s a small amount, will give that money more time to grow. The sooner you start making smart financial decisions, the better off you will be.
3. Financial Planning and Retirement Planning are the Same Thing
Retirement should be just one of the many goals within a financial plan. A financial plan is more than having a 401(k) or IRA – it’s about balancing all of your financial goals. A financial plan can help you allocate your money appropriately by determining and prioritizing your goals.
4. Financial Planning and Investing are the Same Thing
Investing has become interchangeable with financial planning for many people. However, like the last myth, investing is just one piece of your financial plan. Investing plays an important role in helping you work towards the different goals in within your financial plan, but that doesn’t mean it is the only part of a plan.
5. I Don’t Need a Formal Plan if I Make Good Decisions
While making good financial decisions is a good first step, it does not constitute financial planning. There are so many moving parts to your financial life – retirement planning, investing, cash flow needs, tax considerations, estate planning & insurance needs – that you can’t possibly balance them all properly without a well thought out plan.
6. I Don’t Need A Plan Until…
Many people don’t think about a financial plan until a life event happens. The very definition of planning indicates that you should start acting well in advance of these situations. Financial planning is about more than the big moments in life, it’s about establishing the day-to-day lifestyle that helps you prepare for those big moments. Imagine that you are planning a surprise birthday party for your spouse. Would you wait until the day of the party to buy the cake, purchase the decorations, and send out the invitations? Of course not. You would start planning weeks or months in advance to make sure everything was in order. You should have the same mindset when it comes to financial planning.
7. Financial Planning is the Same for Everyone
People often believe that there is one formula or product that is the ‘magic fix’ for their financial concerns. It’s important to understand that no two financial situations are exactly the same. Your time horizon, risk tolerance, income needs, etc. are unique to you. That is why financial planning is so important. You should be making the financial decisions that are best for your life, not someone else’s.
8. Financial Planning is a One-Time Activity
Life is constantly changing, and your financial plan should be changing along with it. Getting a raise, changing jobs, getting married, having kids, buying a house, getting divorced, and getting older are all things that will potentially alter or affect your financial plan. It’s important to regularly revisit and update your financial plan.
Good Luck! Jeff