The Importance of a Financial Plan

Scott Sullivan |


Imagine walking into a building with no stairs, no doors, and no windows. It's impossible to get anywhere or do anything within that space. A financial plan is like a blueprint for your financial future. It gives you the steps you need in order to reach your goals, including savings, investing and retirement planning.

A financial plan is more than just a way to retire comfortably. It's a document that helps you figure out how to achieve your financial goals.

  A good financial plan will help you create an overall strategy for reaching your goals, including

  • Retirement planning
  • Investing in your child's education
  • Buying a house or paying off debt

Your plan should be tailored to you. It isn't one-size-fits-all, and it shouldn't treat you like a one-size-fits-all person.

It's important to set realistic and achievable goals. This can be a challenge, because it often means that you need to get real about what you want in life. You may have dreams and aspirations that aren't financially feasible—or might not even be possible at all.

When creating a financial plan, it's essential that your goals are clearly defined and understandable by someone other than yourself (for example, your partner or your family).

It's also helpful if they're specific enough so that when you look back over the years at how far you've come from where you started out, it won't just seem like a blur of numbers on paper or an abstract goal without meaning behind it. For example: “I want to earn $50,000 per year” vs “I want enough money saved up so that I can retire in five years” vs “I want my kids' college funds ready when they start applying to colleges.

Changing your investments to fit your lifestyle and goals can help you stay on track.

Periodically reviewing your investments and how they fit with your goals, risk tolerance and tax bracket can help ensure that you stay on track. This is especially important if you have achieved some of your goals and want to recalibrate for the future.

For example, a 50-year-old who has reached his or her retirement goal may want to adjust his/her investment portfolio so as to maximize returns while still keeping risk at an appropriate level. On the other hand, an individual who is nearing retirement age might find it appropriate to reduce risk in order to protect against market fluctuations which could jeopardize his/her savings before he/she reaches full  benefits from Social Security or traditional pensions (or defined benefit plans).There are many types of investment accounts that can help you reach your goals without paying taxes along the way. Roth IRAs and 529 plans are two examples. These savings plans have tax advantages that make it possible for you to save for retirement, education, emergencies and other important things without losing money on taxes.

With a Roth IRA, you contribute after-tax dollars into the account. That means there's no deduction from your paycheck or W-2 form at tax time—but withdrawals in retirement will be tax-free (as long as certain requirements are met). If you choose this option, look for investments that allow you to withdraw money whenever needed; not all investments allow this flexibility.

A 529 plan is another good option if saving for college is one of your financial goals: Contributions aren't deductible on your taxes but qualified withdrawals aren't taxed either (provided certain conditions are met).

Your financial plan should include an emergency fund for unexpected issues, so that you don't have to touch your long-term savings in the case of an emergency.

The next section of your financial plan should be dedicated to an emergency fund. This is the money that you have set aside for unexpected costs, such as a car accident or medical expenses. You should have enough in this account so that even if you have to dip into it, you won't feel too much of a strain on your finances.

The good news is that building up an emergency fund doesn’t require much extra effort once you've already saved up some money from your budgeting efforts. If possible, try saving at least 6 months worth of living expenses in this account so that if anything goes wrong—and it will—you'll still be able to pay all of your bills and keep things running smoothly until the situation resolves itself again (or makes itself worse).

Longer life expectancy is making retirement planning more complex than ever before. Planning for what happens after you use up your 401(k) funds is more important than ever before.

When you think about retirement planning, the first thing that comes to mind probably isn’t “longer life expectancy.” But it should be.

You will have to plan for more years of retirement and with a fixed income: your savings are finite, and your withdrawals will impact your income. So how can you make sure that you have enough money when it matters most? In this section we'll discuss why it's important to plan early, what happens if you don't do any planning at all, and how long-term goals align with short-term priorities like paying off debt and saving for emergencies—or even just buying nonessentials like a new car or house!

The structure and design of your financial plan should adapt as you go through life's milestones, like having kids or changing careers.

A financial plan is a structure that you can use to guide your financial decisions. It should be flexible enough to adapt to the changing circumstances in your life. For example, if you have kids, then your plan should incorporate college savings and payment plans; if you change careers and end up with a higher salary than before, then it's important to make sure your retirement savings are still on track; if you get divorced and there's an alimony or child support payment coming from one spouse into another's household budget, then those numbers need to be part of the plan too.

The point here is that by having a flexible framework for making decisions about money matters—and sticking with it over time—we can feel confident in our ability to manage our finances effectively over time.

Creating and maintaining an accurate financial plan can help give you peace of mind by helping prepare you financially for major life events.

Financial planning is not a one-time activity. It’s an ongoing process, and you will likely need to adjust your financial plan as your life circumstances change.

For example, if you have a child or buy a home, those major life events can impact the way you save and invest money. Similarly, if you are nearing retirement age but don’t have enough savings to support yourself during that time or if your investments are performing poorly compared to their benchmark indexes (for example, when the stock market is down), then it might be time for some adjustments in your financial plan.


If you want to be successful with your financial plan, make sure it's tailored to your needs. Take some time to review your plan so you have the confidence that you will meet your goals. If you do not have a financial plan, give us a call today to discuss how creating a plan can help meet your lifestyle and goals