According to a joint survey by the Consumer Federation of American and the CFP Board, households with a financial plan in place felt a higher level of financial well-being than those without a plan. According to the survey of 1,508 financial decision makers in households nationally:
- Those with plans are more likely to feel they are on pace to meet all of their financial goals, such as saving for retirement or for emergencies, by a margin of 50% to 32% and for all but the lowest income bracket (those making less than $25,000 a year);
- Those with plans are more likely to feel “very confident” about managing money, savings and investments, by a margin of 52% to 30% and across all income brackets;
- Those with plans are more likely to describe themselves as living comfortably by a margin of 48% to 22%. In addition, as many people who plan and who make $50,000 to $99,999 a year say that they live comfortably as non-planners in the $100,000 and above income bracket;
- Among respondents in the two highest income brackets, those with plans report saving a higher percentage of income and having built greater wealth than those without them. For example, people with plans who have incomes between $50,000 and $99,999 are more likely to report they save 10% or more of their income (57% vs. 39%) and to have accumulated at least $100,000 in investments (37% versus 19%);
- For those in the two lowest income brackets, people with plans who use credit cards report being much more likely to pay credit card bills in full. That is true both for those who make $25,000 to $49,999 – 46% for people with plans and 26% for those without them – and for those with incomes under $25,000: 41% for people with plans and 16% for those without them; and
- Overall, only 31% of respondents said they have a comprehensive financial plan, while about two-thirds or 65% indicated they follow a plan for at least one of their savings goals.
(Bullet points taken from an article on financial-planning.com Financial Planning Critical Regardless of Wealth: Survey)
None the less, the findings of this study and others clearly show that having a financial plan in place is a key element in achieving your goals. Financial planning typically encompasses areas such as:
- Saving for College
- Tax Planning
- Estate Planning
- Retirement Planning
- Employee Benefits
Some financial planning best practices (via the CFP Board) include:
- Setting measurable financial goals.
- Understanding the effect of each financial decision.
- Re-evaluating your financial situation periodically.
- Start planning as soon as you can.
- Be realistic in your expectations.
- Realize that you are in charge.
As a practicing financial planner I believe in the value of hiring a trained financial planner to help you through this process. However there are many web sites that have financial planning tools that might be of help to you if you choose to do this yourself. Among them:
- T. Rowe Price has a number of tools and calculators on their site.
- Morningstar.com has several planning tools; some may fall under their inexpensive premium umbrella.
- If you participate in a retirement plan through your employer, many plan provider sites have a number of calculators and planning tools.
- Mint.com has a number of budgeting and planning tools.
If you are seeking the help of a professional, you can find someone in your area here:
- NAPFA is the largest professional organization of fee-only financial advisors in the country. (Full disclosure I am a NAPFA Registered Advisor)
- The Garret Planning Network is a group of fee-only advisors who mostly work on an hourly basis. Many Garret members are also members of NAPFA.
- The Financial Planning Association (fpanet.org) has a find a planner function on their site.
- The CFP Board site has a link to help you find a Certified Financial Planner™ as well.
Whether you do it yourself, hire a professional to help you, or some combination of the two, the best time to get started is now. In my experience, your investment strategy should be an outgrowth of your financial plan, not the other way around.
Please remember this: Financial planning is an ongoing process not a one-time event.
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