A lot of people believed in certain ideas regarding financial planning or wealth management. One of which is that it is only made for the rich. However, in order to prove this theory, you have to assess the reasons as to why financial planning is limited in the first place, which it isn’t. You’ll be
A lot of people believed in certain ideas regarding financial planning or wealth management. One of which is that it is only made for the rich. However, in order to prove this theory, you have to assess the reasons as to why financial planning is limited in the first place, which it isn’t.
You’ll be surprised to know that financial planning doesn’t really cost that much. If this is the case, why do people believe that it is only for the rich? To address the elephant in the room, financial planning is for individuals who want to learn how to manage their money well so that they can achieve their dreams and goals in life regardless of their current financial situation.
In fact, certified financial planner Kirsty Scully explained in CapeTalk how financial planning isn’t just for the wealthy, it’s for everyone, including ordinary folks. Scully explains that wealth management can help everyone, not just those with high salaries.
A 2016 Financial Engines report claimed that only 37% of the entire American population with an annual income between $35,000 and $100,000 have a comprehensive financial plan. It is dangerous to think that people who are low or middle-income earners believe that they do not have enough money to warrant having a financial plan.
With that in mind, here are some of the reasons as to why everyone needs a financial plan, regardless of how much they earn:
To Better Prepare Yourself for a Financial Emergency
In life, there are a lot of things that we cannot predict. There are instances that would require you to have an emergency fund at hand. Whether you are the CEO or someone who has an entry-level job, financial planning is done to help you pool the needed money for any unexpected expenses.
Imagine this, the company that you have been working for declared bankruptcy and is needed to let go of some of its employees. Unfortunately, you were one of those employees. What would you do?
Financial planning helps you be more prepared for these kinds of situations. In fact, financial experts have advised individuals that their savings should be equivalent to a year’s worth of daily living expenses. Furthermore, it should easily be accessible, like a bank savings account.
To Reduce the Chances of a Credit Card Debt
According to the 2013 Household Financial Planning Survey and Index, which was completed by the CFP Board of Standards and the Consumer Federation of America, those who have financial plans are less likely to incur a credit card debt. Even when they do, there is a high chance that they have the money to pay it off.
With financial planning, you can eliminate your habit of relying on credit cards. Even with a limited financial plan, you’ll still be able to lower your chance of having debt. In fact, surveys have concluded that 61% of these limited financial planners have no credit card debt at all.
To Protect Your Loved Ones
Another unexpected thing that could happen to all of us is death. If you have some kind of financial planning, then you would have thought about investing in life insurance. This is a great investment as it will help you protect your loved ones in case you die.
In a study conducted by the Financial Engines, it was reported that 67% of middle-income earners have either disability or life insurance. Moreover, 83% of upper-income earners already have these policies in place.
To Earn More
Financial planning is not only for the rich. In fact, those who are low-income earners would greatly benefit from this practice because it can help them earn more. If you have a sound financial plan, as well as a basic understanding of your finances, you can choose the right investments for your savings. As a result, this can generate better progress that accumulates wealth over time.
To Aid in Reaching Bigger Financial Goals
Every individual dreams of having their own house, buying their first car, or possessing the ability to pay for their children’s college education. Do note that these big financial goals are far more challenging as compared to saving enough money for a trip over the summer.
With that being said, a financial plan can help guide you in achieving these goals. It will spell out how much money is needed to realize this goal, what are the necessary steps to ensure that this money is not spent on other things, and everything else in between.
To Keep Track of Your Expenses
One of the primary pillars of financial planning includes tracking your monthly expenses. If you have experienced an almost drained bank account, not knowing where the money has gone, then it is about time that you start creating a financial plan for yourself.
To avoid instances of a drained bank account, you’re going to need a household budget that provides you with an accurate list of all the things you spend on – from rent to utilities, from groceries to dining out, from transportation to entertainment, and so much more.
Having these figures laid out in front of you will ease the process of comparing them with how much money you actually earn and how much money you should be spending on each item on the list.
To Form Good Money Habits
When it comes to financial planning, you are not only protecting yourself from unexpected financial challenges. It also trains you to form good money habits. Eventually, you’ll be able to pinpoint certain routines that are unnecessary.
You’ll be able to gain a deeper understanding of your finances. Furthermore, you’ll be able to give structure to any of your unclear intentions. Most importantly, you’ll be able to avoid overspending.
Those who have developed good money habits feel good about themselves. There is also less anxiety felt because your goals in life are backed up by sound financial practices that can help you prepare for the future.
In the end, financial planning helps you understand where your money is going and if it is going in the right direction. With this practice, you’ll be able to understand the basics of investing, which in turn, allows you to build a healthy relationship with your wealth.