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The Financial Planning Process: a journey as important as the destination

The Financial Planning Process: a journey as important as the destination

When you begin considering a vacation, you might open a mapping app and start calculating the best route to your destination. As you plan your trip, you may search for restaurants, stores or entertainment along the way. The planning instills a sense of excitement and becomes an integral part of the journey itself.

In the same way, the act of developing a personal financial plan can provide as much value as the plan. While you are in the planning process, you take a series of steps to create your own, personalized road map for budgeting, saving and investing. This process allows you to draw a direct line from your financial actions of today to your financial destination.

Planning begins with a basic question: “What do you hope to achieve?” Are your goals focused on your years in retirement? Are you trying to anticipate the needs of a growing family? Or perhaps your objective is simply to create more financial freedom. After defining your unique goals, you and your advisor work backward to determine the best routes for reaching those objectives. This process — assessing the condition of your personal finances in relation to your goals — often opens investors’ eyes. By answering questions that may prompt you to dive deeper into your goals, you take the time to consider what’s truly possible once your financial considerations are no longer an obstacle. Thinking through these possibilities can provide insights about your future that you may not have previously understood or even considered.

A 2013 study1 by the Consumer Federation of America and Certified Financial Planner Board of Standards indicates that the more households plan, the more likely they are to save, invest and manage credit card debt. Their financial efforts are more likely to be successful and they are more confident in their approaches to money if they have an established plan, the study shows.

Importantly, the planning process is dynamic and the plan is changeable. When your circumstances shift (you get married, as an example), it will be time to update your road map. Your plan addresses not only your financial circumstances today but should be adjusted as your life changes. The plan also takes into account your hopes, desires and even biases. Do you want to avoid investing in oil or tobacco, for example? Your plan makes note of those preferences and can be modified as your preferences change.

As with any map, your financial plan also serves as a reminder of where you are heading. When you catch glimpses of your financial destination, you are more likely to remember that every dollar you save or invest today can help you reach that objective. Additionally, the benefits of planning are numerous. A study2 from the Certified Financial Planner Board indicates that most people surveyed (75 percent) believe their stress would be reduced by having a financial plan and by having additional financial knowledge and time to focus on their finances.

It is important to remember that your advisor should not insist that you strictly follow every detail of the plan. Instead, a competent advisor can help you to correct your course over time so your investments match your circumstances and fluctuations in market environments. And while having a plan is an important step, the ongoing planning relationship between you and your advisor is equally important — helping you to navigate and maximize choices along the way.


https://www.cfp.net/news-events/latest-news/2013/09/18/new-research-shows-most-american-households-do-financial-planning-but-the-extent-of-this-planning-varies-greatly
https://www.cfp.net/docs/default-source/news-events---research-facts-figures/2015_04_stress-awareness-month-survey-report.pdf?sfvrsn=10

Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original publication of the report. These opinions are subject to change at any time without notice. Investors must bear in mind that inherent in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return, and yield. Investors should also remember that past performance is not necessarily an indicator of future performance and D.A. Davidson & Co. makes no guarantee, expressed or implied to future performance. Investors should consult their financial and/or tax advisor before implementing any investment plan.

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