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Financial Planning Insights

What Is a Financial Plan?

8 minute read time


Establishing a financial plan puts you in the driver's seat of your future. In this article, we'll cover what a financial plan is and the steps you can take to build yours. 

The key to both short- and long-term financial success lies within building a strong financial plan. Yet, 65% of Americans don't have a formal financial plan in place, according to Schwab's Modern Wealth Survey. Many Americans believe financial planning is either too costly, too time-consuming or they don't have enough money to start. We're here to put those rumors to rest: Financial planning is accessible for everyone and very simple to implement with the help of your financial advisor. Here's everything you need to know about financial planning so you can achieve your monetary milestones:

What is a financial plan?

A financial plan is a holistic framework that outlines your financial goals and objectives, along with instructions on how to achieve them. Each financial plan is tailored directly with your needs in mind and should include elements to encompass your entire financial picture — like cash flow, savings, debt and insurance. Financial plans can help you accomplish goals like buying a home, planning for retirement and other long-term financial goals.

Benefits of a financial plan

  1. Provides goal clarity: A financial plan provides you the full picture when it comes to hitting major milestones. Your financial plan can help you determine if your goals (and timelines) are feasible. Or better yet, if there are larger goals you can achieve.
  2. Helps avoid unnecessary risk: Financial plans should include strategies to manage and mitigate financial risks, like emergency funds and contingency plans. When the unexpected arises, you can lean on your financial plan for answers.
  3. Improves decision-making: A financial plan identifies problems and opportunities early so you can be proactive and take action if needed. It can help you make informed decisions to positively impact your future.
  4. Increases your financial confidence: With a well-thought out, stress‐tested financial plan, you can find the balance between comfort and confidence, which can provide you with some peace of mind.

When should you start a financial plan?

The simple answer is the sooner, the better. No matter if you're a new college graduate or beginning to think about retirement, you should start a financial plan to set yourself up for success. Large life changes, like a promotion or preparing for marriage, can also trigger the need to build one. Here's how we can help you put action behind your goals:

The Ten Steps to Creating a Financial Plan

1. Define your objectives and goals

Your goals are the blueprint for financial planning. By setting these goals and objectives, we can help you build a financial plan and measure progress. Most of all, we work to understand your mission. If you're having a hard time deciding on your goals, take a closer look at your personal values and what will bring you a lifetime of happiness. Your financial plan should be able to answer the following three questions:

    1. What makes me happy?
    2. What do I want to do about that?
    3. What will it cost?

Whatever your goals are, we help you put a plan in place to achieve them.

2. Assess your current financial situation

Your short-term financial life impacts your long-term goals. Review your income, expenses, assets and liabilities so you're aware of where you're currently at financially. We can guide you towards your life-long goals by helping you calculate your current net worth and evaluating your cash flow.

3. Create a budget

A personal budget helps you stay on track with your financial goals. Budgets also help you avoid overspending and reduce monetary stress. We recommend following the 50/30/20 budget model so you can track your needs, wants and savings. For this method, you should put half of your income towards your financial obligations — like groceries, insurance and rent. 30% should be allocated towards your wants: such as vacations, going out to eat and other purchases that are fun but aren’t necessary. The remaining 20% should be placed in your savings either in the form of an emergency fund, savings account or long-term investments.

Follow these steps to create your own budget and reach out to your advisor if you need help creating one tailored to your financial picture.

4. Build an emergency fund

In addition to your budget, you should set aside money in an emergency fund. An emergency fund is an everyday savings tool that you can use for unexpected expenses or emergencies. We suggest saving about six months' worth of expenses aside so you're prepared for anything that may arise. For example, if you or your spouse lost your job, you can dip into this fund to assist with day-to-day expenses until your next career change.

5. Manage and plan for debt

Not all debts are equal — many are essential to life. However, you'll want to assess your current debt situation and determine which are high interest. High-interest debts, like credit card balances and payday loans, are debts you'll want to tackle first so you're not paying off double of what you borrowed or weighing down your credit score.

You'll also want to plan ahead for larger debts you're expecting to owe, like a mortgage loan. Review your financial objectives and goals to determine which debts are on the horizon for you through MyFinance Manager.

6. Save for retirement

If retirement is a financial goal for you, it's best to start saving as early as possible. We're here to answer any questions you may have regarding your employer's 401(k) or retirement plan offerings and provide suggestions on how much you should be putting towards retirement. Or if you're a business owner, we can discuss what your options are for retirement savings and what you can offer to your employees.

7. Invest in your future

In addition to retirement, there are other financial investments you should consider when thinking of your future. Stocks, bonds, funds and annuities are investments to consider depending on your risk tolerance and short- and long-term goals. We can help you determine which investments are right for you.

8. Review insurance coverage

Insurance is another important piece of your financial plan puzzle. Setting yourself up with insurance coverage protects your future self from unexpected health problems and accidents. Many employers offer health, disability, auto, homeowner's and life insurance as a part of their benefits package. Determine which insurances are essential for you so you're not overpaying (or underpaying) on coverage.

9. Determine your estate plan

The last element of your financial plan is creating your estate plan. An estate plan helps you build a legacy to support the people you care about most, including yourself. They cover who will make decisions if you're unable to, strategies that protect your assets and who you want your property passed down to. Your advisor can help you set up an estate plan that is perfectly tailored for you and your needs.

10. Regularly adjust your plan

A lot can change in a year, or ten. That's why it's important you check in on your financial plan with your advisors to keep you on track. Don't be afraid to update and reassess your goals as your life changes. Remember, your financial plan is here to support you and your ever-changing goals.

Ready to get started? Click here to find a financial advisor or reach out to your current financial advisor to start creating your financial plan. Already have a financial plan? Now is the perfect time to schedule an appointment with your advisor to review.

Johnson Financial Group and its subsidiaries do not provide tax advice. Please consult your tax advisor with respect to your personal situation. Wealth management services are provided through Johnson Bank and Johnson Wealth Inc., Johnson Financial Group companies. Additional information about Johnson Wealth Inc., a registered investment adviser, and its investment adviser representatives is available at NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE