Why Financial Planning Is Important

Andrew Weber is a senior director of Planning Philosophy, Research and Guidance at Northwestern Mutual.

If you’ve ever ventured on a road trip to a destination without a map, you’ll know that without one, you might not reach your destination or could face unexpected detours. It’s the same thing when it comes to your financial plan. Trying to reach a financial goal without a plan may result in detours or not even getting there.

But what really is financial planning? It’s your road map to help set and achieve money-related goals and secure your financial future.

And it’s natural to wonder, “How does financial planning and saving for your future help you build wealth and security?” We’ll answer this and other questions like how financial plans work and why they are necessary. We’ll also share wealth building and financial planning tips to consider along the way.

How financial planning can help you meet your long-term goals

There are many benefits to financial planning. With a plan, you can better manage the money you make, save and invest. It’s more than having a goal in mind—it involves evaluating your current financials plus creating a strategy to manage and grow your money. A good plan considers life changes, such as marriage or divorce and buying a home.

Why enlist a financial advisor to help with your plan?

Working with a financial advisor can be a game changer in achieving your financial goals. By leveraging their expertise and experience, you gain access to informed decision-making that can help you navigate complex financial landscapes. An advisor can provide personalized guidance, helping you create a tailored strategy that aligns with your objectives and takes some weight off your shoulders.

A financial planner can support your financial well-being by:

• Building a road map to begin, stay on track or even catch up to help reach your short- and long-term savings goals while keeping a pulse on financial market changes.
• Navigating how to save for important moments and milestones.
• Developing debt management tactics to manage and reduce debts.
• Using risk management strategies to protect your assets and diversification to ensure stability in uncertain times.
• Creating an estate plan to transfer assets to loved ones.

An advisor can connect life milestones with your unique budgeting, savings and retirement goals. Life milestones could include the following:

Saving for college or starting a college fund for a child

If you have a child planning to go to college, get a handle on the average bachelor’s degree cost. When you have an idea of the total cost, you can figure out when you’ll need to start saving. This will help you set realistic savings goals and address how your plan meets them.

Buying a house for the first time

Looking to own your own home for the first time? Buying a home is a huge milestone with many financial variables. Account for these home costs and needs:

• Your down payment, or the money you pay upfront for a home, usually accounts for 20 percent of the purchase price of your home.
• The time of year also affects the all-in cost, so do you research on the all-in costs associated with home ownership.
• Home loan interest rates and costs vary by loan type.

Saving for retirement

While saving for college and buying a home are more near-term expenses, retirement is a long-term goal to consider in your plan. A few different guidelines can help you calculate how much you’ll need in retirement.

The 25X Rule, $1,000-a-Month Rule, and 4 Percent Rule can help you target retirement amounts. While the right amount for you depends on your lifestyle and goals, it’s worth considering how much the average retiree spends. According to the Bureau of Labor Statistics, the average 65-year-old spends $60,087 per year, which means you may need to save over $1 million after Social Security is factored in. What’s more, the average retirement savings, including 401(k) accounts, is:

• Around $30,000 for those under 35.
• Around $132,000 for those ages 35 to 44.
• Around $255,000 for those ages 45 to 54.
• Around $408,000 for those ages 55 to 64.
• Around $426,000 for those ages 65 to 75.

These averages give you an idea of where you fall compared to others. To find the right amount for you, talk over your goals and lifestyle with a financial advisor.

How financial planning improves financial security

A good plan includes ways to grow your money—but it also includes ways to protect what you’ve built, creating financial security. Here are some ways planning can build security:

• A good financial plan includes smart investing and tax planning strategies. Diversification is like a garden, with a mix of different varieties that offer varying benefits. Like a garden, a diverse portfolio keeps your assets in balance, offering support when the market changes. Learn about how to make money investing.
• Financial security also means leaving a legacy for loved ones. A financial plan often has an estate plan component so your loved ones are taken care of as best possible when you’re gone. Estate plans for families with substantial wealth are especially important.
• While savings is the end goal, sometimes the first step is paying off debts first: A financial plan can help you get out of debt or avoid it in the first place. But remember that not all debt is bad, and it’s okay to carry both good and bad debt.

How financial planning reduces financial stress and anxiety

Financial stress is common. Nearly 70 percent of Americans say financial uncertainty has made them feel depressed and anxious, according to the Northwestern Mutual 2025 Planning & Progress Study. Having a solid plan addresses major issues causing financial stress. These are common stressors and how to plan for them:

• Economic hard times, recessions or losing your job: Emergency funds, liquid savings accounts and low-risk or passive investments give a cushion between jobs.
• Unexpected family deaths prompting the need for long-term health or disability coverage: Accounting for long-term care and disability insurance offers peace of mind to protect loved ones’ financial futures. They can even tap into death benefits associated with long-term life insurance for a stream of income they may not have otherwise had access to.
• Get more pointers on how to better your financial wellness.

Long-term consequences of not having a financial plan

There are drawbacks to not having a plan.

1. You risk not having enough money to retire when you want or how you want: Cash flow management is the first long-term issue that could stem from not having a plan in place. Without proper planning, you may not be able to retire when or how you want. Or you might have to return to work. Others who don’t have enough money in retirement sell off assets to support their living costs or resort to a reverse mortgage.
2. You can’t leave money behind for loved ones: People leave money to provide support and security. This gesture shows care and helps loved ones have what they need for a better future.

Key elements of a holistic financial plan

While plans vary from person to person, they share common themes. They generally fall into these categories:

• Saving/growing wealth
• Protecting wealth
• Managing debt
• Estate planning

Other plan considerations

Creating a financial plan isn’t a set-it-and-forget-it task. Regularly work with your advisor to review and adjust it to reflect personal and external factors. Common considerations in one decade are different than those in others. For example, in your 20s, your plan may be different than it is in your 30s or 40s.

How can I create a realistic financial plan based on my income and expenses?

Creating a realistic financial plan is possible with your financial advisor. Working with an advisor can help you create a realistic plan that accounts for:

1. Cash flow and debt management, listing income sources and expenses.
2. Specific goals for each category.
3. Protection and investment strategies to help reach your goals.

Personalized financial and investment planning

Ready for one-on-one support that meets you where you are and where you hope to go?

We know financial planning for individuals is fluid. For this reason, recommendations will meet you where you are and include flexible financial tools that can help you design a plan that fits you now and in the future. Find a financial advisor to cultivate a plan to reach your unique version of financial well-being.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER® and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.