Most people understand the basics of financial planning and the benefits it offers. Yet, many of them also have some misconceptions about financial planning. While there can be a variety of reasons why many people don’t plan for their financial future, part of it can be explained by some common misconceptions they may have about financial planning.
Here are 8 most common misconceptions about financial planning.
- “Financial planning is only for the wealthy families” – Saying financial planning is only for wealthy families is like saying only wealthy families have financial needs, dreams, and aspirations. Financial planning is for anyone who wants to organize their finances, make sound financial decisions, and pursue money goals. Paying off debts, building wealth, having a secure retirement, and giving their child a debt-free college education, are some of the most common financial goals most people have, regardless of their level of income or net worth. No matter your financial status, financial planning can help you pursue your financial goals in the most systematic and efficient manner possible.
- “Financial planning benefits only the reckless spenders” – Financial planning is for anyone, reckless spender or not, looking for clarity, organization, and discipline in their financial life. Financial planning can help you simplify your financial life, quantify and prioritize your financial goals, and provide you the direction you need in pursuing your goals.
- “Financial planning is all about budgeting, cutting back and saving” – This may or may not be warranted depending on your current financial and personal situation, and the financial goals you are trying to accomplish. An effective financial plan goes beyond saving, to help you live the life you want, with the resources you already have. A right financial plan for your circumstances can balance what you need and want today, with the personal goals you have for the future.
- “Financial planning is all about selling me financial products” – Not all financial advisors earn commissions, referral fees, and other financial incentives on the products and solutions they recommend for your needs. Unlike commission-based financial advisors, fee-only financial advisors earn only an hourly fee or a flat fee for their expert financial advice, and nothing else. Ask your financial advisor about his fee-structure and all potential conflicts of interests.
- “Financial planning is same as retirement planning” – While retirement planning is one of the major financial goals for most people, it is usually not the only financial goal in their life. In addition to having a goal of ensuring a secure retirement, you may also have other financial goals such as building and preserving wealth, funding your child’s college education, paying off debts, reducing the financial risks associated with devastating events, maximizing wealth transfer, establishing charitable legacies, etc. A well thought out financial plan prioritizes your financial goals and may even make it possible to pursue many, or all of them, simultaneously.
- “Financial planning is just about investing” – Financial planning takes into account various parts of your financial life – taxes, insurance, retirement, budgeting, investing, estate planning, and life goals – and develops financial strategies that make those parts work together, in achieving your financial goals in the most efficient manner possible. While sound investing is an important part of financial planning, it does not constitute the entire financial planning in itself.
- “Financial planning is not for young people” – Establishing a plan early in life can help you build a solid financial foundation and learn good financial habits early on. The sooner you start making sound financial decisions, the better off you will be. The younger you are, the more the time you have for achieving your long-term financial goals. Also, the longer you wait to have a financial plan, the fewer the options you will have.
- “Financial planning is a one-and-done deal” – Financial planning is not a once in a lifetime event that you handle and cross off your to-do list. Financial planning is an ongoing process. Once your financial plan is in place, it should be periodically reviewed and updated to assure that you remain on target towards achieving your financial goals. As you experience changes in your life, your financial plan should also reflect those changes.
In summary, financial planning is for anyone who wants to pursue their financial goals in the most systematic and efficient manner possible, regardless of their age, financial status, income level, or life stage.