Is Financial Planning Only for the Wealthy?

Financial Planning: Not Just for the Wealthy

A lot of people believe that financial planning or wealth management is only made for the rich. However, to prove this theory, we need to assess why financial planning seems limited, which it isn’t.

Surprisingly, financial planning doesn’t cost as much as many think. So, why do people believe it is only for the rich? Financial planning is for individuals who want to manage their money well to achieve their dreams and goals, regardless of their current financial situation. Certified financial planner Kirsty Scully explained on CapeTalk that financial planning isn’t just for the wealthy; it’s for everyone, including ordinary folks. Scully emphasizes that wealth management can benefit everyone, not just those with high salaries. A 2016 Financial Engines report showed that only 37% of Americans with an annual income between $35,000 and $100,000 have a comprehensive financial plan.

Reasons Everyone Needs a Financial Plan

To Better Prepare Yourself for a Financial Emergency

Life is unpredictable, and emergencies may require you to have funds on hand. Whether you're a CEO or have an entry-level job, financial planning helps you pool necessary funds for unexpected expenses. Financial experts advise that savings should cover a year’s living expenses and be easily accessible, like in a savings account.

To Reduce the Chances of Credit Card Debt

The 2013 Household Financial Planning Survey by the CFP Board and Consumer Federation of America found that those with financial plans are less likely to incur credit card debt. Financial planning helps you reduce reliance on credit cards, as 61% of limited financial planners reportedly have no credit card debt.

To Protect Your Loved Ones

Life insurance is an important aspect of financial planning, providing security for your loved ones in case of unexpected events. A Financial Engines study reported that 67% of middle-income earners have disability or life insurance, and 83% of upper-income earners have these policies in place.

To Earn More

Financial planning benefits low-income earners as much as the wealthy, helping them earn more over time. With a solid financial plan and understanding of finances, you can choose the right investments, which leads to wealth accumulation.

To Aid in Reaching Bigger Financial Goals

Many individuals dream of owning a home, buying a car, or funding their children's education. A financial plan can help guide you toward these goals by defining the necessary steps and ensuring funds aren’t diverted elsewhere.

To Keep Track of Your Expenses

Tracking monthly expenses is a key component of financial planning. A budget helps you monitor spending on essentials like rent, utilities, groceries, and entertainment. Seeing these figures helps align expenses with income.

To Form Good Money Habits

Financial planning not only protects against financial challenges but also cultivates good money habits. It gives structure to your intentions and reduces overspending. Those with sound financial habits often experience less anxiety about their future.

Final Thoughts

Ultimately, financial planning clarifies where your money goes and if it’s being allocated effectively. Understanding these basics can help you build a healthier relationship with your finances.