The following article is an excerpt from our ebook, “How to Develop a Successful Financial Plan and How an Advisor Can Help,” which you can download here.
Imagine you’re a photographer. You’re ready to shoot a picturesque scene in nature.
Now, imagine you’re that photographer, but you’ve put the lens hood on the wrong way — instead of extending out front and providing shade, it’s pointing inward, effectively useless — and now you’ve lost contrast and have a bunch of hotspots in your photos.
More often than not, photography issues can be solved when the photographer recognizes what could go wrong.
The same can be said about finances. When it comes to your money, you can avoid some of the greatest financial pitfalls by coming up with a plan.
Here are three reasons it’s important to have a financial plan:
- Financial planning isn’t a panacea, but it allows you to prepare and monitor ongoing preparedness for future milestones.
You can’t predict the future. We all know this. However, you can make an educated guess.
In the same sense that you can expect quality photographs if you attach your lens hood facing the correct direction, you can expect success if you evaluate your goals and begin to move toward them, working actively to build the life you desire.
- Financial planning helps bring everything into focus.
Imagine life as a series of photographs. If everything in the photos is blurred, you will have a hard time identifying a center of interest. If nothing is blurred, you’ll have a hard time figuring out what is supposed to stand out. In an ideal photograph, the center of interest should be in focus and everything else should be blurred.
The same goes for managing money. Financial planning allows you to determine centers of interest in your life.
In developing a financial plan, you are forced to consider what you want to afford in the future. You have to think about what you want in retirement, and you have to consider “unexpected” possibilities. For example, you might anticipate having to take care of your parents. Rather than being blindsided by taking care of your parents as a reality, you can take measures now to be prepared for it.
You should consider your current financial constraints. Ask yourself these questions: How much can I save? What is my risk tolerance? What are my liquidity requirements? Will I face any other issues? Answer these honestly.
Once you project your future and evaluate your constraints, determine if your retirement goals are actually realistic. If they are realistic, put a plan into place that will allow you to accomplish those goals. If they aren’t realistic, re-evaluate until your goals line up better with reality.
- Focus on meeting your goals, not on the day-to-day of the market.
It’s easy to get caught up in the day-to-day of what the market is doing. There are plenty of red herrings out there trying to reassure you of unsustainable promises (e.g. prospects of beating the market). Ignore them.
Continuously monitor your plan to make sure you’re on the right track. The whole point of investing is to meet goals. If your goals are on track, it doesn’t matter what the market is doing.
A financial plan is important. While life might not necessarily be like photography, it’s important to bring your life into focus by concentrating on meeting your goals.
Advisors at McLean are skilled at helping clients develop strong financial plans. Contact McLean today.
Download our ebook “How to Develop a Successful Financial Plan and How an Advisor Can Help.”
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