- Life & Money
- Financial Planning
- Your Financial Plan
- Andrew Weber CFP®, CLU®, AEP®, RICP®, WMCP®
- Nov 29, 2022
What Is Included in a Financial Plan?
Andrew Weber is Senior Director of Planning Philosophy, Research and Guidance at Northwestern Mutual
What exactly is a financial plan, and what’s included in one? If you’re not sure, that’s OK. It’s also not uncommon to think you have a plan when, in reality, you don’t. Still, it is likely you’re already doing at least some of the things that would be covered in a financial plan, like saving for retirement.
But a financial plan goes further than just saving for a goal. It helps you ensure you’re saving the right amounts and see how all the pieces of your financial life fit together in a way that can help you feel confident that you’ll reach the goals you’re trying to achieve — and that you’ll do so in the most efficient way possible.
A financial plan is basically a road map. It starts with where you are financially. Then a financial advisor will help you figure out where you want to go. The plan works out how you’ll get there — and what you’ll do if there’s an issue along the way. It’s kind of like a map app that plans your route and watches out for slowdowns, even re-routing you if needed. And just like your map app, the financial plan can evolve with you if your path changes in the future.
But what, exactly, does that look like? Here are some of the key elements included in most financial plans.
What is included in a financial plan?
Financial planning is highly personal. This means that while everyone’s plans will have similar ingredients, the amounts, when they’re added and how they’re mixed together will differ based on your situation. So to give you a clear idea of what goes into a financial plan, we’ll start by looking at some of the most common components.
When you’re ready to build your plan, a financial advisor1 will get to know you and your goals and then show you how all the pieces might come together most efficiently for your situation.
In nearly all cases, the best financial plans will include more than just a plan to save for the future. They also look at risks to make sure you’re protecting your wealth. A plan that uses a range of financial options to help you grow your wealth and to protect it from known risks can give you more confidence that you’ll reach your goals.
A financial plan can chart how to grow and distribute wealth
Some people assume financial planning is all about increasing your wealth: You invest your money with the hopes of growing it over time. But your ideal plan will not only show you the best route to get you where you want to go as quickly as possible but will also give you options for when your goals or plans change — including unexpectedly.
Saving for retirement
Whether you have a financial plan or not, you are probably saving money for retirement — maybe in a 401(k) through work or an IRA you have opened on your own. But are you saving the right amount and in the right way? Do you know how a mix of Roth and traditional retirement accounts can help you be more tax efficient? A plan can show you how additional financial options beyond your 401(k) and investments can help make your savings go further.
Retirement is a big goal that’s in nearly everyone’s plans. But people invest for many other goals as well, like paying for college, buying a home or even just taking a big bucket-list trip someday. A financial plan can help you make sure you’re contributing the right amount to different types of investments based on your goals.
Quiz: Is Financial Planning Right for Me?
When used wisely, debt can be a great financial tool. But it can also be a drag. Whether you have student loans, credit card or other debt, a financial plan will help you balance your debt management with what you’re spending today and on other goals. A financial advisor can also help to educate you about debt and different strategies to pay down or manage your debt.
Leaving a legacy
Whether you have a small nest egg or significant wealth, most people leave something behind for loved ones, special causes they care about or both. A financial plan helps you be more deliberate about the legacy you want to leave during your life and after you’re gone. By planning your giving strategy, you can often be more impactful and can help to free yourself to spend down other assets.
A financial plan to safeguard what matters
Some financial plans focus heavily on growing your wealth. That’s great, but it can also leave you vulnerable. Financial plans that also look at potential risks can give you more confidence that you’re on track to reach your goals even if something doesn’t go exactly as planned.
Providing for loved ones
When you have people who depend on you and your income, it’s important to have a plan for them in the event that something happens to you. This is where life insurance often plays a critical role in a financial plan — to replace lost earning potential. A basic estate plan is also an important component to make sure that your wishes are carried out.
Income is an important part of financial planning because it’s what funds all your goals. It’s important to have a plan for what would happen if you were ever sick or hurt and unable to work for an extended period of time. That’s because the impact of having to tap into retirement or other savings to live if you’re ever in a situation like this can create a huge hole in your financial plan.
While we should all pay the taxes we owe, why pay more than you should? A financial plan can help you protect your wealth from taxes in numerous ways. This could include simple recommendations about using tax-advantaged accounts that are available for certain goals (like a 401(k) to save for retirement or a 529 plan to save for college). A financial plan can show you how to use a mix of different financial options to limit the amount of taxes you’ll owe now — and in retirement. And if you have more significant wealth, a financial plan can use more advanced tax strategies to ensure you and your family keep as much of your wealth as possible.
Creating a lifetime of income
Saving for retirement is great. But what happens when you get to retirement? A financial plan helps you use a range of financial options that reinforce each other in order to create a reliable stream of income in retirement. By using multiple options, the plan prepares you for key risks — like market volatility, taxes, inflation and the potential that you may live longer than you expect. That’s why having a plan can help you focus more on enjoying life in retirement without having to worry about what’s happening in the markets.
A financial plan brings it all together
While there may be an item or two on this list that jumped out at you, the reality is that you’re probably already doing things like saving for retirement and managing debt. Maybe you also have some life insurance. The true value of a financial plan is how it brings all these components together so that the individual pieces work more efficiently based on your goals.
A financial plan can also help you prioritize what you’re saving for future goals and what you’re spending today — often giving you the freedom and confidence to spend more today because you know you’re on track to do what’s important to you in the future. And most importantly, if your goals change, a plan can evolve with you over time.
A financial plan can help give you the confidence that you’re on the fastest route to your goals and that you’re ready for anything that may get in your way.
1Not all Northwestern Mutual representatives are advisors. Only those representatives with the titles "Financial Advisor" or "Wealth Management Advisor" are credentialed as NMWMC representatives to provide advisory services"
This publication is not intended as legal or tax advice. Financial Representatives do not render tax advice. Consult with a tax professional for tax advice that is specific to your situation.
The products and services referenced are offered and sold only by appropriately appointed and licensed entities and financial advisors and representatives.
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I lead the Planning Excellence team responsible for guidance and research on good planning. In my role, I work on researching strategies that combine life insurance, annuities and investments to produce better client outcomes.