9 Reasons You Need a Financial Plan
By Mark Yatros
Have you ever wondered why some people seem to have their finances all figured out? You know the type because they’ll say things like:
"I’ve finally built up an emergency fund for unexpected expenses."
"I save money every month without stressing about bills."
"I’m confident about my financial future and reaching my goals."
How do they do it?
The secret often lies in having a solid financial plan. A financial plan isn’t just for the wealthy or financially savvy; it’s a powerful tool that anyone – even you! – can use to achieve their financial goals and secure their future.
No matter where you are in your financial planning journey, starting your financial plan or expanding one you already have is within reach. From building an emergency fund to planning for significant life events, the following nine reasons will show you how a financial plan can transform your financial health and give you peace of mind.
1. You’ll discover what’s working for you financially and what isn’t
Creating a financial plan takes a lot of self-reflection. You should consider what’s working in your finances and what isn’t. You may discover that while you are great at saving money, you struggle with managing debt or that even though you stick to a budget, you’re not making any progress toward your long-term goals.
Understanding your financial strengths and weaknesses can help you make informed decisions that will help you achieve your goals faster.
Identifying areas where you’re doing well, like saving regularly or keeping debt low, can reinforce positive habits. On the other hand, recognizing where you’re struggling – maybe with high credit card balances or overspending – allows you to address these issues head-on. This self-awareness is the first step toward making meaningful improvements in your financial life.
My colleagues and I at Allegiant Wealth Strategies are experienced in helping our clients evaluate their current financial situation. We understand that everyone's financial journey is unique, and we don’t judge where you are. We’re here to help. My team and I are happy to meet you for a free consultation. Please get in touch with us here or call (269) 218-2100.
Pro tip: Use a budgeting app to track your expenses for a month. It can help you spot spending habits you didn’t realize you had and find areas where you can save more money.
2. You’ll be inspired to create an emergency fund
An emergency fund, which serves as a financial safety net, is an important part of any financial plan. Your emergency fund is meant to cover unexpected expenses, like car repairs or medical bills, so you can avoid relying on credit cards or loans and increasing your debt load.
I suggest that you aim to save at least three to six months of living expenses in your emergency fund. Once you assess your financial situation and determine how much money you spend on essential monthly expenses, it will be easier for you to figure out exactly how big your emergency fund should be.
If starting an emergency fund seems daunting, I encourage you to do it bit by bit. Even setting aside a small amount each month adds up over time. The peace of mind you get from knowing you have a cushion for life's surprises is well worth the effort.
Pro tip: Set up an automatic transfer from your checking account to a separate savings account every payday. This way, you’ll be saving without even thinking about it.
3. You can take advantage of compound interest
Compound interest is like money magic. It means you earn interest not just on your initial savings but also on the interest your money has already earned. The earlier you start saving or investing, the more time your money has to grow before you need it for retirement or a large purchase.
For example, imagine you put $100 into a savings account every month with an interest rate of 5% per year. At the end of the first year, you’ll have $1,200 in contributions plus about $30 in interest. In the second year, you’ll earn interest on your new total of $1,230, not just on your monthly $100 deposits.
Over time, the amount of interest you earn keeps growing, making your savings grow faster and faster.
Pro tip: Start investing as soon as possible, even if it’s just a small amount. Use a compound interest calculator to see how your money can grow over time – it might motivate you to save more!
4. You’ll create a unique plan
Everyone’s financial situation is different, so your financial plan should be tailored to fit your unique needs and goals. Think about what you want to achieve – perhaps it’s buying a house, traveling, or retiring early. Your financial plan can be written to achieve these goals.
My colleagues and I at Allegiant Wealth Strategies help our clients assess their financial situations, flesh out their goals, and create unique financial plans. Your goals become our goals, and we work with you to help you achieve them. We’re happy to meet you for a free consultation. Please get in touch with us here or call (269) 218-2100.
Please know that you should review your plan at least yearly and adjust it as your life changes. What works for you now might not be the best choice in a few years. The key is to stay flexible and adjust as needed to keep on track.
Pro tip: Write down your financial goals and review them regularly. This will help you stay focused and make it easier to adjust your plan as your priorities change.
5. You’ll have increased confidence
Having a financial plan can boost your confidence. When you know where your money is going and how it’s working for you, you feel more in control. This confidence can reduce stress and help you make better financial decisions.
Seeing your progress can be a great motivator. Whether it’s watching your savings grow or seeing your debt decrease, these achievements can give you the confidence to keep going.
Pro tip: Celebrate your financial milestones, no matter how small. Recognizing your achievements can keep you motivated and confident.
6. You’ll develop better money habits
A financial plan helps you develop better money habits. By setting and sticking to a budget, you become more mindful of your spending, which can lead to more thoughtful decisions and less impulse buying.
Better money habits can also mean saving more and reducing debt. Over time, these habits can significantly improve your financial health.
Pro tip: Set small, achievable financial goals to build good habits. For example, save a certain amount each week or reduce your dining-out expenses.
7. You can jumpstart your savings
Once you have a financial plan, you can jumpstart your savings. By setting specific goals and creating a budget, you’ll find ways to save more effectively. This could mean cutting back on unnecessary expenses or finding new ways to earn extra income.
Having a clear savings goal can help you stay motivated. Whether saving for a vacation, a new car, or a rainy day, a plan can help you get there faster.
Pro tip: Use visual aids like charts or apps to track your savings progress. Seeing your progress can motivate you to keep saving.
8. Start an investment portfolio
Investing is a powerful way to grow your wealth over time. While it might seem intimidating initially, starting with a solid understanding of the basics can make it much more approachable. Learn about the different types of investments, such as stocks, bonds, and mutual funds, to build a strong foundation for your investment strategy.
It’s important to note that saving in your 401(k) or 403(b) is different from other types of investing. While these retirement accounts are outstanding for long-term savings, you can also invest outside of them to diversify your portfolio.
If you’re wondering how to invest, a certified financial advisor can help guide you. The Allegiant team works with people at any stage of life, and you don’t have to be wealthy to benefit from our services. We are happy to meet you for a free consultation. Please contact us here or call (269) 218-2100.
Please always remember that investing is a long-term strategy. Don’t worry about the market’s day-to-day ups and downs. The key is to stay consistent and patient, which allows your investments to grow over time.
Pro tip: Set up automatic monthly contributions to your investment account. This will make investing a regular habit and help you take advantage of dollar-cost averaging, which can reduce the impact of market volatility.
9. Plan for significant life events
Whether it’s buying a house, getting married, paying for your or your child’s education, or starting a business, a financial plan will help you prepare. When creating your financial plan, you will estimate how much money you will need for upcoming significant life events, and then you’ll develop a strategy to save for them.
Not only will you have money set aside for your big events, but your stress will most likely be reduced when these events happen. You’ll know you’re financially prepared, which can make the experience more enjoyable.
Pro tip: Create separate savings accounts for each significant life event. This will help you track your progress and stay focused on your goals.
Now’s the time to act!
Creating a financial plan might seem overwhelming, but taking the first step is critical. Understanding your current financial situation and setting clear goals is essential to building a plan that works for you.
I encourage you to act today. Begin with one small step and build from there. Whether setting up a budget, starting an emergency fund, or making your first investment, every action brings you closer to financial success.
Remember, my team and I are here to help. Please get in touch with us here or call (269) 218-2100.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.