Financial planning might sound like something only the very rich can afford. But you don’t need to be wealthy to reap the benefits of financial planning, and these days, financial planning services are more accessible and increasingly affordable.
The goal of financial planning
Financial planning creates an ongoing process that will reduce your stress about money, support your current needs, and build a nest egg for retirement.
If you work with a financial advisor, you’ll be nudged to answer questions about your income, spending and goals. The advisor will help determine how much money you’ll need to reach those goals, then guide you through the steps you need to take to get there. Financial advisors also typically help you choose investments, and many manage your investments for you.
Financial planning is important because it ensures you’re not just working for your money, but that your money is also working for you: Planning puts a roadmap to your finances, maximizing each dollar — no matter how many you have.
6 steps to financial planning
Whether you’re navigating how to make your own financial plan or hiring a financial planner, prepare for these steps:
- Identify your goals: Think broadly about life goals and what you need financially to achieve them. “Do you want to buy a home? Do you have kids, do you want kids?” says Wayne Maslyk, president of Great Lakes Benefits and Wealth Management in Sandusky, Ohio. “What age would you like to retire? What kind of income are you going to need?”
- Collect your financial data: What’s your net worth — that is, the value of your cash, investments and other assets versus your debts? How much cash is coming in and going out? “The money you spent last year, where did it go? What did you spend on groceries, what did you spend eating out, going on vacations?” Maslyk says. “All these things get tied into the financial plan.”
- Put it all together: Contrast your goals with the data about your income, expenses and net worth. Don’t be disheartened — remember, you’re mapping how to get from where you are now to where you want to be.
- Develop immediate, medium-term and long-term plans: Building and following a budget is a common immediate step. Reducing credit card or other high-interest debt is a typical medium-term plan that can unlock long-term savings growth. Life stages will dictate some things: “If you’re nearing retirement, you want to think about when you want to retire, and how to make the money last,” says Mario Hernandez, director of operations at Gemmer Asset Management in Walnut Creek, California. “If you’re a millennial, you need to start doing something now about retirement savings if you haven’t started.”
- Put your plan into effect: Set realistic goals, and check in on them each month. The goals should support one another. For example, a goal to reduce high-interest credit card debt helps a medium-term goal of improving your credit, which will help longer-term goals like buying a home or investing more for retirement.
- Monitor and update in response to life events: Financial planning isn’t a static process and you may need to make adjustments, depending on how you’re progressing. Often, life intervenes: Preparation for marriage or divorce, the birth of a baby and emergency health situations are common times when financial plans need to be updated. “Check in and change as needed on an ongoing basis,” Maslyk says.
No matter your budget, help is available
There are more choices than ever for affordable financial advice. Here’s an overview of your options:
- Automated services called robo-advisors build and manage an investment portfolio for you, aligned to goals like retirement. They’re best if you mostly want investment management, though some services also offer online financial-planning tools or access to financial advisors to answer basic questions. Robo-advisors typically charge around 0.25% of the amount you invest with them, and many have low or no minimum investment requirement. Wealthfront and SoFi Automated Investing are examples of robo-advisors, but we have a full list of the top robo-advisors here.
- Online financial planning services offer virtual access to financial advisors for less than the cost of a traditional in-person advisor. Some of these companies pair each client with a dedicated advisor who creates a complete and custom financial plan; others offer unlimited access to a team of financial advisors. Online planning services also offer investment management. These companies typically charge a flat fee that starts at around $400 a year, or, like robo-advisors, a percentage of the amount you invest with them. Among the advisors NerdWallet reviews, that percentage ranges from 0.30% to 0.89% per year. Minimum investments range from zero to $100,000 or more. Examples of advisors in this space include Facet Wealth, Personal Capital and Vanguard Personal Advisor Services.
- Traditional in-person financial advisors offer a range of services, including investment management, financial planning and specialized guidance like estate planning, tax planning or addressing insurance needs. Traditional advisors typically charge a percentage of assets invested, with a median fee of around 1%. Some advisors charge by the plan or by the hour instead. (Here’s more about financial advisor fees.) Note that some traditional financial advisors decline clients who don’t have enough to invest; the definition of “enough” varies, but many advisors require $250,000 or more.
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