What is a Financial Plan

10 Examples of What a Financial Plan Is

Your friends and co-workers tell you all about their wonderful financial planner. “You should make an appointment – you won’t regret it!” But you scoff at their suggestion. “I don’t need a financial planner, I have my money under control,” you may think privately. Do you really?

Before you condemn financial planners and the plans themselves, understand exactly what a financial plan is and see if you truly have all the pieces of your personal financial puzzle fitted together. You might be surprised to find that your mental plan is missing quite a few necessary components.

What is a Financial Plan?

The most general definition of a financial plan is a document that outlines present and future financial goals based on known values. While the plan itself can be black and white, the process of planning is ongoing. Many people update their plans on an annual basis with their advisor to stay current with life changes and revised decisions.

Do I Need a Financial Plan?

You may be the one working to earn the money and you probably have goals for that money, but there are two things you are missing: knowledge and accountability.

It’s not that you are not a smart, wise person, you just may not be educated in-depth on the various retirement savings accounts available for you. You do not know how to create a will and testament. You only have a ballpark idea of how much money you should keep in an emergency fund. Financial planners are trained to fill in the gaps where your information leaves off. They are not trying to control your money. They simply aim to educate you so you make better decisions overall.

Secondly, the accountability factor is powerful. You may commit to saving a certain percentage of your income for retirement or investments, but if you are operating on your own, no one has to know if you skimp on saving to treat yourself. When you have a financial planner, they don’t have to know either, but they will see if you are not sticking with your saving commitment.

Should I Consult a Certified Advisor?

It is vitally important to work with someone you absolutely trust, especially since you are about to disclose everything about your finances. An even greater consideration is working with an individual who has proven their experience in the field.

Certified financial planners must meet high industry standards before they are allowed to practice without supervision. They must first have completed a bachelor’s degree. Then they must complete a financial planning course. After course completion, they must take a difficult test and achieve a passing grade.What is a Financial Plan

They must also submit proof of two years of financial planning apprenticeship or three years of experience working in the financial field. Otherwise, they will not receive their certification credentials. Use the Certified Financial Planning Board’s online tool to locate an advisor nearest you.

You can expect a serious financial plan constructed with the help of a skilled advisor to include these 10 aspects. This will help you appreciate the time and effort that goes into thorough financial planning a bit more than you already do.

  • A Financial Plan Will Discuss Lifestyle Goals

Where do you see yourself in three years? What about five years? How about 10 years? A financial plan is completely based on you: your dreams and your desires. If you want to be living in a four bedroom, two bathroom house and driving a luxury SUV within eight years from now, you can’t just wait and let all the chips fall and hope you end up with what you want. You have to plan.

It is time to concentrate and identify the key aspects of your lifestyle you want for your future. Do you want to take a vacation every year? How much spending money do you hope to have in your budget? A financial plan is not a magic wand that can guarantee you receive everything you want, but it can help you make smart choices in the here and now so you can indeed live the life you want in the future.

  • A Financial Plan Will Identify Upcoming Expenses

Once you have established how you want your lifestyle to look at various markers in the future, you have to name specific stepping stones to reach those targets. For instance, what major expenses are in your future that will help you reach your goals? What major expenses might you be ignoring since they seem “far off”?

If your current vehicle has over 150,000 miles on it and you have not started saving for the next one, your financial plan will redirect savings in that avenue. If your current home needs a new roof in order for you to successfully sell it for the price needed to buy your next home, your dream home, you must budget for those specific home improvements ahead of time.

  • A Financial Plan Will Target Hurtful Spending Habits

Is reckless spending causing your finances to be more difficult than they have to be? There is something about sitting down with an advisor and going through each and every account that will force you to look in the mirror. You will have to own up to unnecessary spending habits if you want to change – taking responsibility is the first step.

A financial plan can determine how much free money you are allowed to spend each month while still working towards your goals. If you are truly serious about altering your ways, you can ask your financial planner to hold you to your promise and call you out when you get off track.

  • A Financial Plan Will Address Current Debts

Financial plans are not just for profitable people. Of course, they are, but they are not reserved for those with plenty of money to spare. No matter how much debt you have in circulation, a financial plan is still a great choice.

Financial planners help their clients prioritize debt in order of interest rate so they pay less out of pocket in the long run for interest charges and fees. Financial planners help their clients put together a debt payoff schedule so they can see exactly when they will be credit-card or loan-free. If paying off debt is important to you, communicate that with your planner so they can tailor the plan for your immediate future towards that goal.

  • A Financial Plan Will Help Build Emergency Funds

How much cash do you have in your savings account for emergencies? None? $500? $1,000? Do you know exactly how much you need? This is an area of expertise for financial planners.

You will get educated on the purpose and goal of emergency funds. Financial planners can help you build up a financial cushion that can take care of three to six months of living expenses in case you lose your job or face a medical emergency. You will know how much you should keep in liquid funds and how much you should place in a separate location, such as a money market account.

  • A Financial Plan Will Identify Retirement Savings Needs

You may know what type of house, car and vacations you want in the next decade, but what about after you retire? The amount of money needed to sustain your retirement lifestyle will depend on what you personally expect out of retirement. Do you expect to drive a newer model car and purchase a new vehicle every few years? Do you want to have a vacation home? Would you like to vacation twice a year or four times a year?

Based on your answers to retirement lifestyle questions, your financial planner can instruct you to stow away additional funds in investment portfolios or high interest savings accounts. When you ask “what is a financial plan?” you should know that retirement planning is a very important aspect and one that should not be ignored until later in life.

  • A Financial Plan Will Address Children’s Needs

How many children do you plan on adding to your family? A thorough financial plan will include an adjusted monthly spending budget for when children are added to your life. Even if you have children already and are used to the added cost of daycare and babysitting, as children develop their needs multiply.

For example, children enter many growth spurts and will require new shoes and clothing to fit. You may want your children to play organized sports or take music or art lessons. When children enter high school, you may need to pay for additional books and educational supplies as they take more difficult and more involved classes.

Do not forget health insurance. Even with high-quality coverage, co-pays can quickly add up. The child will need dental care and possibly orthodontic care which is usually not covered by insurance. On average, it costs $245,000 to raise a child from birth to age 18, not including the cost of college.

But then there is college to think about. How much money do you want to save for your child’s education? Do you want to pay for their entire undergraduate degree? What about if they want a Master’s degree? It’s imperative to plan as early as possible, as the cost of both public and private college institutions continues to rise.

  • A Financial Plan Will Determine Investment Risk

Do you know what major stocks should be included in your portfolio? Do you know what mixture of cash, bonds and stocks are ideal based on your savings goals and age? Do you know how to adjust your assets to a changing market?

Unless you are a stock market guru, leave the investment portion of your financial planning to a professional. A planner will monitor your stocks so you do not have to concern yourself with day-to-day fluctuations. They will keep you grounded when it seems like you are losing money and remind you that long term growth is the goal, not short term profit. A financial planner will get to know your comfort level with investing and establish a risk level that fits you and your specific financial plan.What is a Financial Plan


  • A Financial Plan Will Investigate Career Goals

While financial planning and career coaching are two different services, the certified planner can help you see the monetary side of career advancement. If  you have been considering switching roles at your job or moving to an entirely different career, talk it over with a financial planner and they can offer insight into how much cash you will need for additional education and support if a job search takes longer than expected.

  • A Financial Plan Will Include End-of-Life Planning

Finally, to fully discover “what is a financial plan?” you must understand that estate planning is a necessary part of life before death. When you pass away, whether decades in the future or unexpectedly young, you do not want surviving family members to deal with an administrative and legal mess when it comes to your assets.

Financial planners will look into your life insurance needs and explain how naming a beneficiary works. They can help you set up trusts and legal guardianship for your children. You can even choose your funeral home, burial plot and type of service you wish for and put those preferences in your will.

A financial plan that includes end-of-life directions should be updated once a year to account for evolving assets and relationships. While your financial plan is not a legal document, it can be used to augment an official legal document and give your surviving partner, parents or siblings clues to your current financial state.

So, now that you have discovered 10 different aspects to answer the question, “What is a financial plan?” it’s time to start working on your own plan. Take stock of your finances today and contact a certified professional nearby for assistance.

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