Financial Planning: Why It's Important, and How To Do It

Creating a financial plan can help you manage your money and work toward financial milestones. Whether you want to save up money for retirement or go on vacation, maintaining a financial plan can help you reach your short-term and long-term goals. Let’s dive deeper into what financial planning is and why it’s important, no matter your age or income level.

What is financial planning and why is it important?

Financial planning is a process that helps you determine how you’re doing financially, identify your financial goals, and design a plan to reach them. Creating and maintaining a financial plan gives you control of your income and expenses so you can live the lifestyle and plan the future that you want.

Goals a financial plan can help achieve

With a solid financial plan in place, you can meet a variety of goals, such as:

• Buying a house: Homeownership is something many Americans dream to achieve. If you currently rent, financial planning may help you save up for a down payment so you can eventually buy a property and qualify for a mortgage. 
• Buying a car: While cars are expensive, they can be essential, especially if you live somewhere with limited public transportation options. Whether you want to buy your first vehicle or upgrade your current one, a good financial plan can help you achieve this goal.
• Paying for college education: The ideal way to avoid a lot of student loan debt is to save up for your children’s college education and pay for as much of it as possible. If you make college savings part of your financial plan, you may be able to reduce the debt your children graduate with or avoid it altogether.  
• Retiring: Chances are you don’t want to work forever. As long as you create and stick to a retirement plan, you can retire someday. Your retirement plan should be based on your current income and how much you’d like to live on when you’re out of the workforce.

What to include in your financial plan

When you create your financial plan, be sure to include the following:

Financial goals

Financial goals are short-term or long-term targets you set to meet certain plans or milestones. While your financial goals will depend on your lifestyle and priorities, they may include buying a house, paying for college, saving for a vacation, and retiring early. 

Budgeting plan

A budget is a spending plan based on your income and expenses that helps ensure that you have enough money for your needs and wants. Some of the most popular budgets you might want to consider are the pay-yourself-first budget, the 50/30/20 budget, and the zero-sum budget.

Emergency fund

Since financial emergencies are bound to pop up when you least expect them, an emergency fund is important. To build one, save three to six months of expenses and keep the money in a high-interest savings account you can easily access at any time. With an emergency fund, you can reduce debt and stress when the unexpected happens.

Retirement plan

A retirement plan can turn your dream of retiring into a reality. Typically, it involves saving for retirement through an employer-sponsored 401(k), a Roth IRA, Traditional IRA, or other investment vehicle. No matter your age, a retirement plan is vital to set up. 

Debt payoff plan

If you’re in debt, you’ll have more money to spend, save, and invest once you pay it off. Your debt payoff plan will depend on your unique situation but may incorporate a DIY method, like the debt snowball or debt avalanche, debt consolidation, or a debt management plan. 

Investment plan

An investment plan can help you build wealth and enjoy a financially secure future. Your investment plan might involve a retirement account like a 401(k) or IRA where you can invest in stocks, bonds, and mutual funds. You might also invest in real estate or other vehicles. 

Benefits of financial planning

The most noteworthy benefits of financial planning include:

Achieve short-term and long-term financial goals

Chances are you have short-term goals like buying a new fridge or going on vacation, along with long-term goals like retiring or paying for college. Financial planning can help you work toward and achieve these goals.

Manage your money

Through financial planning, you can design a game plan for how you budget, save, invest, and spend your money. Having a financial plan in place may make it easier for you to manage your money wisely.

Improve financial security

Financial security occurs when you feel at ease about your money because you aren’t worried about having enough to cover your wants and needs. Solid financial planning can improve your financial security.

Increase your savings

By saving money, you can avoid debt, fund emergency expenses like car repairs and medical bills, and accomplish your goals. If you’d like to increase your savings, financial planning is key to helping you get there.

The importance of creating a financial plan with SMART goals

If you create a financial plan, make sure it includes SMART goals. SMART stands for the following attributes:

• Specific: Your goals are clearly defined.
• Measurable: Your goals are specific enough to measure.
• Achievable: Your goals are possible to achieve.
• Realistic: Your goals are within reach and make sense for your life.
• Timely: Your goals have a timeline with start dates and target dates.

Tips to stay on track with your financial plan

There are several strategies you might want to use to ensure you stick to your financial plan. First, enroll in automatic payments so you can cover your bills and save money without much thought. 

If you combine finances with a partner or spouse, work together and make sure you’re on the same page regarding how you’ll manage your money. Also, don’t forget to celebrate financial wins, no matter how small they are, as doing so can keep you motivated.

Ways to get financial planning help

If you need some assistance with financial planning, turn to your bank and credit union, as they might offer valuable literature or free services to their customers. You can also find a reputable financial planner or financial advisor. Just make sure you choose a fiduciary who will act in your best interest rather than try to sell you products to make commission. 

Other great resources you might want to consider include online brokers, budgeting and financial planning apps, non-profit organizations, and credit counseling agencies. 

Advance America can help you meet your financial goals

If you have to meet your financial goals right away and don’t have enough money saved up, Advance America can be a great resource for you. We offer a variety of financial products, from payday loans and installment loans to title loans and lines of credit. Even if you have bad credit, you can get approved and receive your funds quickly.

Visit Advance America today to learn more about the loans we offer.