May 24, 2021

According to a recent survey only 33% of Americans have a financial plan. Of those who don’t have a plan 42%, say they don’t think they have enough money to have a plan, 22% say it’s too complicated and 19% say they don’t have time to create one. I understand why there are so few people with a plan and the reasons why they don’t have one, but on the other side I see the benefits of having a plan and the positive difference it can make in a persons’ life. This is confirmed by the numbers. According to the same survey, 54% of Americans with a financial plan feel very confident about reaching their financial goals while only 18% without a plan feel the same.

Building a plan is not easy because you need to be able to make decisions about many different areas of your financial life and the areas are all tied together. Income, saving, spending, investing, debt, insurance, taxes and your tolerance for risk have to all be manipulated to come up with a formula that is right for your unique situation.  

To build a plan you have to have a lot of knowledge about many different subjects. If you try to do it yourself you can quickly become overwhelmed. There is so much information including videos available online and a lot of it is just bogus. Many sources have a conflict of interest meaning they are trying to sell you something and disguising the sales pitch as information. Also, if you do a search on a subject the information you get may be outdated. Areas like tax law and retirement planning are constantly changing and you have to watch your sources.

There are many big banks, brokerage firms, insurance companies and others that offer financial planning. If you have a company retirement plan you can probably go on their website and using different inputs come up with many different outcomes for your retirement assets. But these sites don’t tell you how much to save and which account to use or how to withdraw that money once you retire. These are not really financial plans, they are just calculators.

In the past, financial plans were thick paper documents and once produced they were quickly forgotten. A good plan should take all of the information contained in those thick plans and distill them down to a few basic action items that are specific to your life. Those items should be prioritized according to their importance and measurable goals should be set, then the plan should be updated frequently. A good financial plan should get you ready for anything that might happen.

But most “financial plans” these days are created by salespeople as a lure to get you to buy a product. A free financial plan is definitely worth what you pay for it. They are usually not very good and nothing more than a sales tool. Although there may be some good information there, in the end the whole plan is designed to guide you to buy insurance or to invest your money with the plans’ creator.  Once they get you in the office, and because they are giving you a plan, you feel indebted and obligated to do business with them.

If you are getting your hip replaced you don’t go to the heart surgeon, and you don’t go to the doctor that does 10 hip replacements a year. You want to go to the doctor that does more than 50 hip replacements per year because they have more experience and may generally have better over-all outcomes. To get a financial plan done properly, you need to go to someone with experience that has no financial motive for the recommendations they make.