Even a basic financial plan can have a significant impact on one's net worth at retirement.
On yesterday's Faith & Finance program on American Family Radio, SMI’s managing editor Matt Bell explained why planning is crucial, even if you don't execute the plan flawlessly.
To listen, click the play button below. Scroll down for the transcript.
Faith & Finance with host Rob West airs weekday mornings on American Family Radio. A different version airs weekday afternoons on Moody Radio.
(More radio appearances by members of the SMI team are posted on our Resources page.)
Transcript
Rob West:
"Prepare your work outside. Get everything ready for yourself in the field. And after that, build your house." — Proverbs 24:27.
Hi, I'm Rob West. That verse underscores the need for planning and execution — key elements for long-term financial success. Matt Bell joins us today to talk about putting planning and execution to work for you.
This is Faith & Finance on American Family Radio — biblical wisdom for your financial decisions. (theme music ends)
Matt Bell is the managing editor at Sound Mind Investing, an underwriter of this program. Matt's an author and a frequent contributor here. And Matt, great to have you back.
Matt Bell:
Hi, Rob. Great to be back.
Rob West:
So, Matt, there's a great article about our topic in the latest Sound Mind Investing newsletter titled Planning and Execution: the Keys to Long-Term Financial Success. And my guess is that all the planning in the world doesn't matter if you don't execute!
Matt Bell:
Yeah, that's absolutely right, Rob. To be successful, you just can't have one without the other. But it's essential to get the ball rolling with that first step — with that plan process.
So there's a saying that "life happens to us when we're making other plans." Well, unfortunately for a lot of people, it seems a more accurate phrase is that "life happens while we're making no plans."
The fact is that millions of people don't have a plan to guide their use of money. And even those who start to put together something of a plan, many end up allowing themselves to get pulled off course. As basic as this sounds, I think a lot of people just don't realize what a huge benefit it is to put a plan together and to follow through.
Rob West:
And clearly there is some empirical evidence for this that you cite in the article. Share that with us.
Matt Bell:
Sure. Yeah, there was some interesting research done back in 2011. Researchers analyzed data from more than 1,200 people over the age of 50. They looked at the type of financial planning these people did or didn't do and how that influenced, ultimately, their net worth at retirement. It was pretty interesting.
They grouped people into four categories. The first noteworthy finding was that that two-thirds of people in this first category did no planning whatsoever. Even though their retirement was close at hand, many had never even taken the step to learn what to expect from Social Security. And that's a pretty simple thing to find out.
Now, in contrast to this big group of "Non-Planners," a second group people that the researchers called "Simple Planners," they had at least thought about what their financial needs might be in their later years, and they tried to calculate how much of their income they should be setting aside for the future.
But that's really where the good news ended for this group. Their follow-through was lacking, with only about half of these Simple Planners creating an actual plan.
Then there was a third group, which researchers called "Serious Planners." They took more action, they sought out more financial information. They even paid for some planning advice, but just like the group before them, their follow-through wasn't the best. About half of Serious Planners failed to follow through.
And then there was the last group, which researchers called "Successful Planners." They were the ones who put together a financial plan and actually followed through over the course of many years. Out of all the people studied, though, only about 20% made it to this level.
Rob West:
So Matt, in that four-step continuum — from Non-planners to Successful Planners — is it only that last group that benefited from planning? Or is there some hope for all the rest?
Matt Bell:
Yeah, that's a great question, Rob. And yes, the good news is there is some hope for all the rest! The research — this was really interesting — clearly showed a benefit of taking even a small step toward planning. For example, just moving up one notch from being a Non-Planner to a Simple Planner — that doubled or tripled net worth at retirement. And then moving up to the Serious Planning category that added another 25 to 35%.
Rob West:
All right, Matt, we've got just about a minute left. Sum this up. What is the take-home message here?
Matt Bell:
Sure. Basically, it can be summed up really well by Proverbs 21:5, which says, "The plans of the diligent lead to profit." So if you haven't started the planning process, or maybe you have a plan but you're not really following it, I hope you're encouraged by this research that shows there's a lot to be gained by getting back on track.
As you know, Rob, at SMI, our members have access to a pretty sophisticated planning tool called MoneyGuide. But even using one of the free online planning calculators that can be found easily, that would be a really good starting point for a lot of people.
Rob West:
Yeah, the key is just to start somewhere.
Well, Matt, we always appreciate our time with you, and we appreciate you stopping by today.
Matt Bell:
My pleasure, Rob.
Rob West:
That's Matt Bell, managing editor at Sound Mind Investing. You can read the article — it's worth the read —Planning and Execution: The Keys to Long-Term Financial Success at soundmindinvesting.org. That's soundmindinvesting org.
I'm Rob West, and we'll be right back.
