Research by Charles Schwab shows that three in five Americans live paycheck to paycheck, and only one in four have a written financial plan.
Schwab’s 2018 Modern Wealth Index scores participants between 1-100 based on their successful money management and investment habits. They consider the following factors:
- Goal setting and financial planning
- Saving and investing
- Staying on track
- Confidence in reaching their financial goals
The index found that those who plan have an average score of 68, compared to a score of 44 given to those who lack a financial plan. Simply put, this means you can improve your financial welfare by approximately 55 percent just by having a written financial plan.
What is a Financial Plan?
Let’s start with an explanation. A financial plan is a comprehensive evaluation of an individual’s current financial position as well as future projections detailing the steps needed to achieve one’s objectives. To create a successful financial plan, you must do the following:
- Evaluate your current financial state
- Develop specific and measurable financial goals and objectives
- Determine and evaluate courses of action and “what if” scenarios
- Create an action plan and implement the necessary financial steps
- Evaluate and monitor the plan
How a Financial Plan Helps You Achieve Your Dreams
Everyone has dreams; but most struggle to convert those dreams into realities. By having a clear picture of your current financial state, you can begin to identify areas of strength and weakness that exist in your personal financial life. This helps formulate substantive goals.
There are often various routes you can take to achieve your goals. By analyzing these options inside of a financial plan, you can make an educated decision about which one is right for you.
To implement your goals, you must stay disciplined. Whether you need to reduce your spending, increase your monthly savings, or be patient with your investment plan, discipline is what makes your plan successful.
Reevaluating and updating your plan annually are critical steps in the comprehensive financial planning process. By tracking your progress, you can determine if any changes are required. When updating your plan, it is an opportunity to share new life events (e.g., marriage, birth of a child, new job) and to set new goals. Reviewing your progress and refining your plan annually will drive your quality of life to new heights as you see yourself achieving your goals. This is an empowering experience that builds confidence and makes people happy.
As Antoine de Saint-Exupéry, the French author and aviator, once said, “A goal without a plan is just a wish.” So, start developing that financial plan, update it annually, and turn your dreams into a reality. A qualified financial planner can help you identify your strengths and weakness, crystalize your goals, analyze all of your available options, help you determine the best course to get there, and monitor your progress to ensure success.
The more disciplined you can be, the greater your success. And like anything, over time, new behaviors become everyday habits. Once you start accomplishing your goals, you will gain confidence in the ongoing process and become excited to consistently set – and achieve – higher goals. Only then will you obtain true financial peace of mind.