What Is Financial Planning?

Having a financial plan 

Think about the last time you took a big road trip. Rather than hop in the car and wing it from point A to point B, you probably mapped out the best route first; found hotels and scenic points along the way; and planned a backup route in case a traffic jam or stormy weather knocked you off course.

Financial planning is a bit like preparing for that trip — except point A is where you stand with your finances today, and point B is the future you who has accomplished your goals with the help of smart money decisions. You may have to make detours along the way — because of obstacles like losing a job or getting hit with a five-figure home repair — but with the proper planning, you can still make it to your destination.

What is financial planning for?

Financial planning can help you meet your financial goals and celebrate life’s milestones with a sense of security. Some common financial planning goals include:

• Getting married
• Buying your first (or second or third) home
• Growing your family
• Paying off debt
• Sending your kids to college
• Starting a business
• Living your dream retirement  
• Protecting your family should something happen to you
• Passing on your assets to your children

Creating a financial plan will help you identify which financial goals are most important to you and will help you create a financial roadmap to reach them.

What is a financial plan?

A financial plan looks at your entire financial picture and breaks down what you’d need to do in order to meet your goals, taking into consideration all your financial obligations. And when the unexpected throws a wrench into things, your financial plan can help you recalibrate, sort of like a GPS for your money. A financial plan can include:

• How much you should put toward your retirement nest egg
• How much to maintain in an emergency fund
• How much you should put toward big and small savings goals, whether it’s buying a new car, planning a family vacation or funding future college tuition
• Advice on which savings and investment vehicles can help you reach your goals, and how to manage your portfolio according to your needs
• The types of solutions that can help protect your family, your income and your assets, or help cover future needs like long-term care
• How to pay down debt, like your credit card balances or student loans
• A budget that shows how your income can be used to cover your expenses and goal contributions — while making sure you can still have fun
• An estate plan that will help ensure the wishes for your family and assets are carried out after your death

Putting together your financial plan

You can put together a financial plan with the help of a qualified financial planner or professional, who can help you prioritize your goals and offer advice on how to achieve them. Your financial advisor can also connect you with other professionals, such as tax or estate planning advisors, for those areas of your finances that require very specialized knowledge. 

Once your financial plan is put into place, implementing it is really where the rubber meets the road. But remember that as your life changes, so will your financial plan. A financial professional can check on your progress, keep you accountable and help you make adjustments as needed, such as when you’re expecting a new addition or find that you simultaneously have to juggle taking care of your kids and aging parents.

Life is a journey that can have many twists and turns, and financial planning can help you prepare for them — and make sure that your money helps, rather than hinders, meeting the dreams you have for you and your family.