Financial Planning Guide 2024 – Newsweek Vault (2024)

Whether you’re saving for retirement, a new home, college or another goal, having a solid financial plan is key to your success. Financial planning can also help you pay off your debt and reach financial independence. In this article, you’ll learn what a financial plan is, some basic finance terms and whether you need to hire a financial advisor to implement your plan.

Vault’s Viewpoint

• Financial planning helps investors to understand their current money situation and identify strategies to meet their short- and long-term goals.
• A financial plan can be comprehensive or target a specific area of your finances, depending on your time and budget.
• Customize goals and tactics to personalize your financial plan and improve your odds of success.

What Is Financial Planning?

Financial planning is the process of understanding your current financial situation, creating money goals and developing a plan to reach them. Your financial plan should include a mix of short- and long-term goals targeting different aspects of your money situation.

Examples of short-term goals include saving for a house down payment, covering your child’s tuition and paying off your debt. Long-term goals may include buying a vacation home, saving for retirement and creating generational wealth.

Types of Financial Plans

There are many different types of financial plans to use depending on what your goals are. However, personal financial planning often boils down to a few categories:

• Comprehensive financial plan. With a comprehensive financial plan, you’ll work with an advisor who will address all areas of your money, including debt, investing, savings, retirement, income, taxes and estate planning. No stone will be left unturned as the advisor helps to improve your financial situation in each of these categories one step at a time.
• Topic-related financial planning. Many investors only want or need help with a limited number of topics. They seek out specialists who can offer advice on one topic and then implement those strategies to optimize that aspect of their finances. For example, an estate planning attorney for a living trust, a CPA for taxes or an insurance agent for life insurance.
• Portfolio management. Some investors choose financial planners solely based on their ability to provide guidance on their investments. These advisors seek investments to help clients meet their investing goals without addressing other facets of their finances, like insurance, taxes or estate planning.
• Robo-advisors. A robo-advisor is an automated investing platform that offers portfolio management without providing personal advice. Clients generally invest in predefined portfolios based on their goals and risk profiles. Many robo-advisors also offer resources for self-study on financial planning topics that clients can access.

Do I Need To Hire a Financial Planner?

Many investors choose to create their own financial plans without the help of a financial planner. There are numerous tools and resources online, through mobile apps or in books that help people reach their financial goals on their own.

However, you find it worthwhile to hire a financial planner or other expert for some or all of your financial planning needs. These experts often have licenses, training and certifications in specific areas of personal finance that can complement your own knowledge. Depending on the type of expert, they may charge a flat fee, an hourly rate or a percentage of your investments.

How Can Financial Planning Help Reach My Goals?

While you may have goals in mind, you might be unsure of how to reach them. Through financial planning, you can go down the right path to successfully achieve your goals and enjoy other benefits along the way.

Build Confidence

Financial planning builds confidence because you have specific steps to take toward your goals. This takes the guesswork of what steps to take and in what order they should be done. You can also track your accomplishments and progress, which can sustain your efforts whenever you feel like the effort and sacrifices are not worth it.

Get Started

The only way to reach your goals is to take that first step. For retirement or buying a home, this could be opening your account and making that first deposit. To pay off debt, this could be making extra payments to reduce your balance and lower the interest charges. No matter what your goals are, having a written financial plan can help you figure out how to get started as you build momentum toward reaching your goals.

Create an Investment Portfolio

Your investment portfolio should be customized to your goals, time horizon and appetite for risk. When you hire a financial planner, they’ll customize a portfolio to suit your needs. You can also access numerous online tools (many of which are free) that can build a solid portfolio based on your answers to an investment questionnaire.

Continue investing in this portfolio no matter how the market performs. This is known as dollar cost averaging, which allows you to buy more shares when the market is down and less when it’s up. Then, rebalance periodically to ensure you don’t become concentrated in any one type of investment.

Build Better Habits

Financial plans help investors build better habits because there’s less guesswork on how to handle money. Money has defined goals, so it can be allocated immediately before it is spent frivolously. As you notch small wins, your confidence will grow and positive behaviors become habitual. With each short-term goal accomplished, you can monitor progress toward future goals and adjust behaviors accordingly to reinforce your habits.

Customize Your Approach

While there are many financial rules of thumb, it’s important to remember that personal finance is personal. What works for one person may not work for another. Create goals that matter to you, then develop strategies to achieve those goals based on your income, expenses, debt and other factors that influence behaviors.

How To Create a Financial Plan

Creating a financial plan will be different for every person. However, there are key elements that investors should consider when creating their plan to increase the chances of successfully reaching their goals. Here are a few simple steps to include in your plan.

• Hire an advisor vs. DIY. While there are numerous tools and resources available to create your own financial plan, it can be wise to hire an advisor if you don’t have the time or expertise.
• Scope of the financial plan. What areas of your finances will the plan cover? Some people want a comprehensive plan that covers all areas of their money, while others choose to focus on a single area.
• Assess your current financial situation. Before developing goals and a plan of action, it is important to understand what your current financial situation is. Take note of your income, disposable income, monthly expenses, debt payments and current savings and investment balances.
• Set goals. Determine what your goals are, and make them S.M.A.R.T.—specific, measurable, achievable, relevant and time-bound.
• How much time do you have? Knowing when you want to achieve goals helps to create a realistic plan of action. The timeframe also impacts how much you need to contribute and how much risk is necessary to reach the goals.
• How will you track progress? Keeping track of progress toward your goals can sustain your motivation and alert you if you’re falling behind. Additionally, if you’re well ahead of your goals, you may be able to reduce contributions and risk or adjust the goal entirely.
• What does success look like? When you reach your goals, what will that look like for you? Envision yourself retiring from your job, watching your child get their diploma or opening the door to your new home. Having these visions can motivate you to avoid distractions and stay focused on your goals.

Hiring a Financial Planner vs. a Robo-Advisor

Investors have numerous options when creating a financial plan for their investments. Traditionally, you’d work with a licensed financial planner who would recommend investments that matched your investment profile. These planners typically charge a flat fee, an hourly rate or a percentage of the assets under their management.

However, many financial planners require a minimum portfolio amount before they’ll work with you. While established investors can easily meet these hurdles, newer investors may be years away from qualifying. Robo-advisors level the playing field by allowing investors to participate in sophisticated portfolios even when they don’t have much money. They offer lower costs and reduced minimum investments, but they typically don’t provide access to personalized financial advice.

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