Important Reasons to use the Financial Planning Process

Nearly every person has the goal of retiring with ample financial resources. The desire of many is to be able to live in the retirement years with the freedom to pursue particular interests without concern about having enough available money. The best way to accomplish this goal is through following a clear, detailed financial plan. What is the financial planning process and why is it so important to follow this process?

Saving successfully over the long term requires a discipline that few people possess on their own. The financial planning process is a systematic method for putting together an approach that will result in a financial nest egg that a person can draw upon when his or her earning years are at an end. This method involves acquiring a good overview of an individual’s current financial situation. Moreover, this entails putting together a detailed plan to achieve specific goals, having a thorough understanding of what is involved in executing the plan, putting the plan into implementation and finally maintaining the plan over time. Each of these stages is essential in enabling an individual to accumulate a level of financial preparedness that will sustain him or her through a lifetime.

Achieving a thorough, accurate overview of a person’s financial situation and specific long-term goals is a tedious and challenging process. Many people struggle to organize their affairs in a discernible manner. This initial stage will force the individual to put all of his or her financial assets and liabilities in one place and thus provide an honest assessment of current financial status. Moreoiver, approaching a financial situation this way helps enable the individual to make the necessary corrections in order to attain desired financial goals. It also provides a realistic accounting of how likely it will be for those goals to be achieved. The discipline required to attain this will be helpful in other areas of a person’s life and also encourage the necessary approach to be able to save and invest for the long term.

Once a good overview has been put together, the detailed plan must be developed. This requires connecting long-term goals with current financial resources and the level of risk that a person can reasonably sustain. This also requires understanding the various investment types available and how each of these can enable an individual to attain his or her goals over time. Investments have unique approaches to accumulating wealth. An important part of a good plan is understanding how each investment decision fits into the overall whole. The more that a plan can be put on automatic pilot, the more that the decisions in a financial plan happen with little or no active work, the more likely the plan will be followed properly and the less opportunity there is for emotional decision making that can lead to financial disaster. Avoiding emotional decisions is an important trait to have if a person is to live well into the later years and avoid risky decisions that can lead to ruin.

Even the best plan must be executed properly if it is to achieve its goals. Proper execution is a combination of a well-ordered plan, the discipline to follow that plan and a thorough understanding of how each step works with the next to achieve the proper result. Execution is in many ways the easiest part of the process, but it must be done consistently over time in order to achieve the financial results desired. Good execution requires the ability to focus on the end result without being overly concerned with short-term results and needs. At any point in the process, the results may not be what are desired, but if the plan is a good one then it will get to financial goals over time. Good execution requires trust in the plan and the belief that the plan will achieve the desired results. Trust enables a person to live with the confidence to set a goal and do what is necessary to make that goal a reality.

Implementation of the plan is an outgrowth of the initial execution. Once begun, the plan requires the vigilance to stay on top of the plan and ensure that it is proceeding according to schedule. A plan is not a guarantee, but merely a scenario by which a goal can be achieved based on certain assumptions about the future. No person can know the future with complete certainty and thus a good financial plan will have built into it the ability to make necessary course corrections as circumstances necessitate. Good implementation puts in place the ability to change certain decision making parameters if the assumed conditions are significantly different from reality. Implementing a plan gives an individual experience in adjusting to changing conditions and yet staying on the overall course. Such experience helps when circumstances get overwhelming and the tendency to panic is high. Being able to adjust properly, while maintaining focus on the end goal is an important trait that helps lead to long-term financial success.

Maintenance is a time to keep the pace, but not a time to let down necessary vigilance. Knowing the plan is in place will give the necessary peace of mind that comes from having done the hard work and doing what is necessary to accomplish a desired goal. Consideration should be made whenever a significant life event occurs that might change long-term goals or financial requirements. Such events as marriage, divorce, the birth of a child, or any number of other significant events should lead to a reconsideration of the overall goals of a financial plan. No financial plan is static. Circumstances continually change and awareness of how they affect a financial plan is necessary. Being patient and alert is a continual balancing act, but those who achieve it are able to maintain a solid financial plan while continually being alert for any changes in circumstance that may occur.

Following a financial plan is the best way to ensure a solid financial reserve long into a person’s lifetime. The steps in following such a plan help to make sure the plan achieves its desired results while also instilling values that will help a person in other areas of life. The discipline instilled by a financial plan helps to overcome the tendency toward emotional and short-term thinking that can lead to financial struggle and sometimes ruin. The rewards of walking through the steps of a financial plan and seeing it to its conclusion are many and those who stay the course will have more peace of mind and options available to enjoy a long and happy life.