Having a financial plan is something you might think is for people like that annoying Facebook friend who posts about his awesome Silicon Valley job and fabulous vacations on the Cote d’Azur. Or maybe it’s a vague task you imagine getting to someday — after the kids are out of diapers, once the credit cards are paid off or when that long-awaited promotion comes through.
If so, think again: Financial planning is for you, and ideally, done now.
Here are some common myths about financial planning and what you should know.
Myth: It’s only for rich people
Financial planning is for ordinary folks, too — anyone who wants to figure out how to manage their money to achieve their dreams.
“If you have goals for what you want to do or need help in crafting them, then you’re a good candidate for financial planning,” says Frank Pare, president of the Financial Planning Association and the PF Wealth Management Group in Oakland, California.
Myth: It costs too much
Here are three ways to get financial help at no cost or for less than you might expect:
- You can create a financial plan yourself. You’ll find a variety of free tools online, such as budgeting and retirement calculators.
- If you want low-cost guidance in picking and managing investments, online services called robo-advisors can help. The computer-based services have low fees and low or no account minimums, and many offer access to humans when you have questions. Check out our picks of the best robo-advisors.
- Or you can hire a human financial planner. You don’t have to be wealthy; some planners charge an hourly or flat rate for advice. Fee-only financial planners don’t make commissions on selling products, so they can provide objective guidance without conflicts of interest. Learn more in our guide to choosing a financial advisor.
Myth: It can wait until life settles down
That could be a long, long wait, because life has a funny way of never settling down. The earlier you start with financial planning, the better your chances of achieving your goals and navigating challenges that arise.
“It’s kind of like dancing,” says Patricia Jennerjohn, a certified financial planner and owner of Focused Finances in Oakland, California. “You can’t do a fancy lift until you know where your right and left feet need to be.” Get a plan in place, then adjust as your needs change and your finances grow more complex.
And if life feels too chaotic, a financial plan might be just what you need. “I see it as an educational process to give people control and understanding,” says Peter Creedon, CEO and certified financial planner at Crystal Brook Advisors in Mt. Sinai, New York. That promotes peace of mind, which can lead to better decision-making.
Myth: It’s all about the portfolio
“People think, ‘If I get my portfolio really well invested, that will take care of me,’” Jennerjohn says. But while a diversified investment portfolio is important, it’s only one piece of the puzzle.
Beyond investments, a comprehensive financial plan looks at your overall financial situation — debts, income, savings and cash flow. It considers insurance needed to protect assets, retirement and estate planning, and tax strategy.
You don’t have to have a full-blown financial plan to invest. Contribute to a 401(k) at work? Got an IRA? You’re already an investor. But having a financial plan can help guide your investment choices so they align with your big-picture goals.
Myth: Get a plan, and you’re set
Expect to monitor and regularly update your plan, because it’s a living document. Just as there is an annual tax season, Pare says there should be an annual financial planning season. Pick a time when your calendar tends to be slower and use it to tend to your financial plan each year.
“It’s not, ‘Here’s the rest of your life on paper,’” Jennerjohn says. Life changes, and so will your plan.