It makes intuitive sense that people with a financial plan would be more likely to achieve their financial goals than those who are just winging it.
A new Schwab study confirms this, while noting several specific differences between people with a financial plan and those who don’t have a plan. For example:
- 85% of people with a financial plan rebalance their portfolio vs. 57% of people who don’t have a plan;
- 75% of planners consider their risk tolerance when investing vs. 56% of people who do not have a plan;
- 74% of planners are aware of fees and investment costs vs. 49% of non-planners;
- 68% of planners have an emergency fund vs. 26% of people who don’t have a plan;
- 56% of people with a financial plan feel “very confident” about reaching their financial goals vs. 17% of people who do not have a plan.
One of the most surprising findings from the study was how few people have a diversified portfolio. Even among people with a financial plan, just 20% described their portfolio that way. Among those without a plan, 9% said they have a diversified portfolio.
Admittedly, such studies do a poor job of distinguishing between causation and correlation. It could be that it isn’t having a financial plan that brings about these better outcomes, but that people with better financial habits are the ones most likely to use a plan. Both may be true to varying degrees, but it’s at least reasonable to suggest that the planning process will tend to foster better financial outcomes.
So let me ask you: Do you have a financial plan?
The process of planning
Keep in mind that the key isn’t the development of a perfect plan. There’s no such thing. There are just too many moving parts. Your circumstances or goals may change. The market might punch your plan in the face, to paraphrase Mike Tyson. Tax laws could change. Etc., etc. The key isn’t the plan itself, its the planning process.
By taking the time to develop a plan you’ll be faced with questions you may not have thought through before. When do you plan to retire? What could hinder your ability to work that long or retire from full-time paid work that soon? How much are your kids’ college educations likely to cost and what portion of that would you like to cover? Are there weddings to pay for, special trips you’d like to take, a home renovation project you’d like to tackle?
Thinking through your goals while putting price tags and deadlines on them will help you estimate how much you need to set aside today to bring about those desired outcomes, and will likely motivate you to find the money.
As we suggest in our new Multiply study, there are free planning tools you could make use of on the Internet, such as Fidelity’s simple, broad-brush Retirement Score or its more detailed Planning & Guidance Center. But if you’re really serious about financial planning, you will benefit greatly from using MoneyGuidePro®, the planning software rated #1 by financial advisors the past nine years. SMI Premium members have access to this powerful tool for a one-time fee of just $50.
Do you have a financial plan? If so, what benefits have you experienced by putting a plan together? If you don’t have a plan, why not?
The plans of the diligent lead to profit, as surely as haste leads to poverty. – Proverbs 21:5