You wouldn’t take a road trip to a new vacation spot without the proper directions, but are you as prepared when it comes to managing your finances? If the answer is no, creating a financial plan can help you make confident decisions about how you save, spend and invest your money.
What The Numbers Show
According to a recent Schwab survey, 64% of Americans say they don’t have the time or money to make a financial plan. The survey also reveals that the 36% with a plan are 2.5 times more likely to save enough for retirement.
If you feel like you don’t have enough time, knowledge or money to create a plan, here are some tips to help change your mind.
Start With Some SMART Goals
Before you work on a holistic financial plan, think about ways to improve your life now. One way is via SMART goals. A concept introduced in 1981, SMART goals will help you define your goals and measure your progress.
A SMART goal is:
- Specific – Decide exactly what you want to accomplish.
- Measurable – Develop a way to track your progress.
- Achievable – Establish what you can achieve with your current abilities and resources.
- Relevant – Line up your goals that match your priorities and objectives.
- Timebound – Decide a completion date.
What Are Examples Of SMART Goals?
Saying something like: “I want to get out of debt” isn’t a SMART goal. A better example might be: “Lower my credit card debt by $1,500 within the next four months by paying an additional $200 per month.” Or – "Pay off my credit card debt of $5,000 in a year by paying an extra $250 a month toward the balance."
SMART goals will help you get started, but don’t discount more aspirational goals either, like buying a home or contributing the max to your retirement savings. Write them down, too. You may not know how to get there yet, but with a financial plan you can. These goals will help you develop your financial plan.
What's In A Financial Plan?
A financial plan is a snapshot of your finances, goals and ways to achieve them. It’s not a document set in stone, but a strategy that will change as your circumstances do. Whether you’re just starting out or further along on your financial journey, planning for your life involves taking a realistic look at your finances and setting your intentions.
If you belong to a credit union and have access to a financial advisor as a benefit of your membership, make an appointment. You can also find resources to do it yourself or pay for a plan. If you do decide to pay for a financial advisor, research your options carefully and get recommendations from people you trust. The cost of a financial plan may range from $1,000 to $3,000.
Developing Your Plan
If you decide to meet with an advisor, you’ll need to gather this information:
- Your goals both immediate and aspirational.
- Federal tax returns.
- Pay stubs.
- Information on income, including bonuses.
- Latest Social Security statement.
- A list of your investments and cash accounts.
- Retirement plan statements.
- Documentation of mortgage and property tax payments.
- Documentation of outstanding debts.
- Documentation of insurance policies.
A meeting with a financial advisor isn’t a mandate, just a way to help you establish what you want to accomplish. A good advisor will listen to your concerns and help you develop a plan you can live with for now and the future. They’ll help you navigate changes in your life such as marriage and children. Keep in mind that a good financial advisor will put your interests first.
Doing It On Your Own
Of course, there are simple ways for you to create your financial plan yourself. Here are some free resources to help:
GreenPath Financial Wellness Worksheets and Guides
Foundation for Financial Planning Consumer Resources
NerdWallet Financial Planning: A Step-by-Step Guide
Just remember when you know where you stand financially, you can plan, dream and achieve your goals.