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5 Questions to Ask Before You Create a Financial Plan

You need to understand your spending habits, money worries and savings goals, and whether you need help from a professional financial advisor.
January 25, 2018
Investing
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One of the key challenges of financial planning is just getting started.

Most don’t get there: Nearly 60% of Americans don’t make or follow a budget, according to a 2016 study by U.S. Bank.

“When people come to me, they are usually of the mindset, ‘I don’t know what to do first,’” says Meg Bartelt of Flow Financial Planning based in Bellingham, Washington.

To create a financial plan you can stick with, experts say you should take a step back and consider these questions.

1. What financial worries keep you up at night?

Maybe you lose sleep wondering what’s going to go wrong next with your car. Perhaps you’re a new parent watching the cash flow out of your account and thinking: “How will I pay for college, let alone retirement?”

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“What’s your pain point, what does your brain keep coming back to?” Bartelt asks. “Sometimes that’s a specific thing, like, ‘I want to buy a house but I live in the Bay Area — is it possible?’ Other times it’s a vague sense of unease about your finances.”

Understanding the fears you hope your financial plan will allay is crucial toward motivating yourself to track and change your spending, savings and investing habits, experts say.

2. How much cash is coming in and going out?

Here’s where many will tune out and flip on Netflix. But this step is key for any successful financial plan. You can’t change behavior until you take full account of where your cash is going.

“There’s a lot of avoidant behavior when it comes to talking about money,” says wealth psychology expert Kathleen Burns Kingsbury, author of the book “Breaking Money Silence.”

There’s a lot of avoidant behavior when it comes to talking about money.

Kathleen Burns Kingsbury, wealth psychology expert

The documents a financial planner would want to see to get an overview of your financial situation include bank and credit card statements, tax returns, bank loans, the most recent statement from your 401(k) or other investments, and insurance policies.

You’re probably not going to like what you see, but that’s OK — it’s the whole reason you need a plan. And it’s a first step toward replacing avoidant behavior with action, experts say. “You can’t plan if you don’t know what you’re working with,” Kingsbury says.

3. What do your money habits say about you?

Try this thought experiment. Look at your debit and credit card statements and ask yourself: If you had only these documents to understand who you are, what would they say about you?

“I used to ask people ‘What’s your relationship with money?’ and they would look at me like I had three heads,” Kingsbury says. A more down-to-earth approach is to sit down with these statements “and not to judge yourself or beat yourself up,” she says, but instead understand where your money is going and consider whether it fits with your values.

“For example, if you spent $50 related to skiing, does that fit your values of enjoying the outdoors? Well, it does. But if you spent $50 at the bar — is that really what [you] want to do?” Kingsbury says. “Notice how your behaviors match or don’t match what’s important to you.”

4. What are the goals of your financial plan?

A successful financial plan takes that information and turns it into changed savings behavior. Usually at the top of the list for most Americans: paying down high-interest debt and building an emergency savings fund to avoid major credit-card purchases in the near future.

“The younger you are, the less important your investing choices are, and the more important your spending and savings choices are,” Bartelt says. But as you age, your focus naturally shifts toward investing for college and retirement.  And, like all wealth built on compound interest, the earlier you start, the better.

Experts recommend setting immediate goals, quick “wins” that will help you in the near term, such as setting up automatic payments or eliminating nonessential expenses. Move those savings toward intermediate and long-term goals, like debt reduction, building your emergency fund or growing your investments.

5. Should you hire a financial planner?

There are plenty of online resources to help you put together a financial plan yourself. But you don’t have to do it alone. There are more affordable options than ever to get professional financial advice.

There are all kinds of financial advisors, from human advisors to online robo-advisors, and even a hybrid solution bridging the two. Most fee-only advisors like Bartelt charge hourly for the advice they give.

“If you are not confident you are making the right choices, especially if you have a major life event, talking to someone else can always be helpful,” Bartelt says. “Even if just a one-time meeting to help get your bearings and get pointed in the right direction.”

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