What is Financial Planning? Do I Need It? Where Do I Go?

Have you ever tried to watch a 3-D movie without a pair of those little glasses? It’s hard! The pictures on the screen don’t make any sense; they were all fuzzy and out of focus, which making the story hard to follow. Of course, if you watch the movie like this for too long, you feel dizzy or get a headache.

For many people, the sensation of watching a 3-D movie without the glasses is a lot like what they experience when they try to untangle their own finances. Think about it; for some people, it gives them a headache … makes them dizzy … they complain that what they’re looking at doesn’t make any sense!

So what is the secret to gaining control of your personal finances? Financial planning. Like the clarity those 3-D glasses gives the moviegoer, financial planning gives you a clear picture of where you stand financially.

Is financial planning for you? One way to find out is to ask yourself these questions:

  • Do you feel you make good money yet have little to show for it?
  • Are you confused about the vast array of investment options?
  • Are you unclear about how your current investments are performing?
  • Do you and your spouse differ over how to handle your money?
  • Are you uncertain if you have the right kinds and amounts of insurance?
  • Have you created an estate plan?
  • Do you feel you pay too much in taxes?
  • Are you worried about not having enough money to retire?

If you answered “yes” to any of these questions, it may be an indication that financial planning can benefit you.

Many families have no idea how they spend their money, how much money they have in their estate or what they want their money to do for them. Without the direction and discipline of financial planning, people typically make impulsive, random decisions: they buy this insurance, invest in that stock or adopt the latest tax strategy. The pieces don’t fit together and may actually conflict with each other and compound problems. Financial planning integrates your assets (what you have) with your goals and objectives (what you want).

Financial planning is not a product, it’s a process. It’s a road map for how to get from here to there in a designated time with the fewest detours and potholes along the way. It’s not about getting rich or the latest stock tip. It’s about helping you to achieve your goals, no matter how wealthy you are. Of course, you use specific financial products (e.g., mutual funds and insurance) or other tools (e.g., wills, trusts, etc.), but only as means to accomplish the goals you’ve set.

So who needs financial planning?  Anyone who wants to take control of their financial life, make good financial decisions and achieve financial independence. Years ago, the finances of the average family were relatively uncomplicated: people worked for the same company most of their lives, lived a few years in retirement on Social Security and their pension, and then passed their modest estate on to their children. However, longer life spans, changing demographics and a more complex financial world have changed all that. Financial planning is no longer a luxury for most Americans, it is a necessity.

Once you’ve recognized the need to plan financially, the next step is choosing the person who will actually do it. Many people are interested in doing their own financial planning using tools like the Internet, Quicken software, television programs and personal finance magazines. If you have the time and knowledge — and your financial situation is not too complicated — you may be able to do a lot of it on your own. However, there are some situations where you may find you need a financial planner.

Procrastination is the greatest enemy of financial independence, and using a planner will keep you on track. In addition, some aspects of financial planning may be too complex for most people, such as calculating how long your retirement capital will last or maximizing tax strategies. A good financial planner will work with other professionals, such as stockbrokers, accountants and insurance agents, to coordinate their efforts with your overall financial needs.

If you want professional help with your financial planning, here are a few tips to help you find someone who is right for you:

  • Look for competence through a specialty designation such as the Certified Financial Planner mark. To earn the CFP certification, a financial planner must meet high standards in the areas of examination, experience, ethics and education.
  • Talk to several planners to find one who fits your specific needs and gives you the most confidence and comfort.
  • Ask for a registration or disclosure statement that details a planner’s experience, education, compensation method and potential conflicts of interest.

You’ll recall that this article began by comparing financial planning to a 3-D movie. If it is, it’s a movie with a very happy ending. A Hollywood scriptwriter’s dream, really: Financial security control over your anxiety while achieving your goals and dreams. I can’t think of a happier ending than that.

If you are interested in meeting with a financial planner, visit the Financial Planning Association’s website or call FPA toll-free at (800) 647-6340.

– Timothy Wyman, CFP, JD

NOTE: Some content reprinted with permission from the Financial Planning Association™

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