The Psychological Power of a Written Financial Plan
Melissa A. Seamon, CFP®
Senior Financial Advisor
It is safe to say that most people have a complicated relationship with money. Instead of being rational about money, they often devise rationalizations about how they manage it.
For example, they know it’s important to live within their means, but they always have a good reason for why they don’t. They understand the importance of setting aside something from every paycheck, but they convince themselves they’ll start doing it with the next paycheck. They know they should have a financial plan to help guide their decisions, but it never gets done. Managing money is similar to losing weight – good intentions, but hard to do.
As a result, most financial decisions are guided by emotions, often leading to spending too much out of exuberance or recklessness, then feeling guilt or shame. When they eventually think about the future, they’re overcome with anxiety or fear, especially when they realize the passage of time only increases the costs of retirement. So, they avoid thinking about it, creating a vicious cycle of more guilt, shame, anxiety, and avoidance that goes on for years or even decades.
Shockingly, Most Americans Don’t Have a Written Financial Plan
According to Charles Schwab’s 2021 Modern Wealth Survey, only a third of Americans have a written financial plan. Of the two-thirds that don’t have a plan, 42% say they don’t have enough money to require a plan, 19% don’t have the time to plan, and 22% say financial planning is too complicated.
For the majority of Americans who have no plan, the path they take or decisions they make are of no consequence to them because they are more likely to focus on the here and now. When they do try to focus on the future, they lack confidence in their decisions because they have no guideposts to steer them in the right direction. So, they do nothing.
Contrary to public opinion, it’s relatively easy to turn the tide in your favor.
It Starts with a Clear Vision of the Future
You don’t have to be wealthy to have a ‘wealth mindset.’ It’s more about having a clear vision of your life ambition and understanding what a good life looks and feels like when you achieve it. A wealth mindset is not based on having more money. It’s based on knowing how much money you need to create your vision of a good life.
Having Clearly Defined Goals Brings Clarity to Your Financial Decisions
When your vision for your future is translated into goals, you can then put the math to it, develop a plan and create strategies that will help you build and preserve your wealth. When clearly defined—with costs and timelines—your goals become your motivation. From then on, you will be able to bring clarity to every financial decision. For example, if what you are proposing to do doesn’t help get you closer to your goals, then you don’t do it or choose another option. Alternatively, if a decision you make will detract you from getting closer to your goals, you don’t make it. For a family, having shared goals makes it easier for everyone to agree on critical financial decisions.
Having a Plan Helps You Make Sound Investment Decisions with Confidence
Having clearly defined goals and a financial plan to achieve them will instill confidence when making investment decisions. Studies show that those who strictly adhere to a long-term strategy generally outperform those who don’t. If you have clear objectives and a well-conceived, long-term investment strategy, you are more likely to adhere to it, thereby avoiding the costly behavioral mistakes that plague many investors, such as trying to time the market or fleeing from it when it declines.
When you have a plan and a long-term approach to your investing, you are more likely to stay focused on your objectives and ignore the short-term fluctuations of the market, which are normal and essential for achieving long-term gains. Instead of allowing your emotions to guide your decisions, you allow your strategy to dictate them.
A Financial Plan Will Help You Get Through Difficult Times
If you have clear objectives and a plan to achieve them, you will have an easier time staying the course when the world around you is spiraling out of control. Adverse conditions such as high inflation, rising interest rates, and market declines are factored into your plan, so all you need to do is stay focused on your objectives. With a plan, it’s easier to make the necessary adjustments to keep you on course.
A Qualified Financial Advisor Can Instill Confidence in Your Plan
When creating a financial plan, it helps to seek the guidance of a qualified, independent financial advisor who can bring objectivity and expertise to developing a plan based on your goals, priorities, and vision for the future. More importantly, a good financial advisor will help you be accountable for your goals and plan, helping you to avoid costly mistakes while helping you smooth out the bumps in the road.
If you are in need of a financial ally like this, please visit our website, or call us to learn more about our services to see if Gardey Financial Advisors could be a good match. We best serve clients looking for exceptional client service, who value a long-term partnership, and have a minimum of $500,000 in investable assets.
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