In today’s post, I plan on addressing some common myths about financial planning. Over the years of going to networking events and introducing myself as a financial planner, I have received puzzling looks and have been asked some great questions about financial planning. What I have come to realize is that the concept of a financial plan is either misunderstood or not understood at all. In the words to follow, I plan on debunking four myths about financial planning.
To level set, I think it is important to go over, at the highest level, the concept of a financial plan. Financial planning is the process of setting financial goals and taking actionable steps towards those goals by employing resources like a financial advisor, investment accounts and an investment strategy to move towards those goals. If you want to do read more on the topic of financial planning and the process, you can check out this post from earlier this month.
Myth #1 – You need to have millions of dollars to work with a financial planner.
I think the biggest misconception of financial planning is that it’s reserved for the wealthy. This could not be farther from the truth! In fact, I would argue that financial planning is more meaningful for people who do not consider themselves wealthy but aspire to build wealth. The end product of a financial plan is having the wealth available, when needed, and using it appropriately to accomplish said goals. Everyone needs to start somewhere and in most cases they are not starting out with millions of dollars.
Myth #2 – I will be judged for my money habits and told to stop spending.
When I get on the phone with a new client, I like to find out the catalyst for reaching out and if they have worked with a professional advisor in the past. A common response I get from folks is that they have not worked with a professional before because they didn’t want to be told that they were being bad stewards of their money.
It kills me when I hear comments like this. I’ve also gotten the comment that going to a financial planner is the same as going to the dentist office. I for one don’t love that my profession is being compared to going to the dentist office and being told that you don’t floss enough. I can’t speak for other financial advisors, but I’ve never once told a client to stop spending money on “x” or said that they were being irresponsible with money. The conversations always circle back to identifying the client’s money values and what is most important to them.
The beauty of a financial plan is that it can project out your current spending and saving habits and illustrate the lifestyle those savings will afford in retirement. The financial plan can help give someone confidence in their saving and spending habits or present the opportunity to re-evaluate those habits if they want something different for their financial future.
Myth #3 – Financial planning is only for retirement goals.
It’s common for most financial plans to include some type of retirement or financial independence goal but not all financial plans are retirement centric. Working with young professionals, I’ve found that retirement is sometimes last priority on their list of financial goals. More relevant goals for this demographic are paying down debt or purchasing a first home, all great goals worthy of a financial plan.
As a reminder, a financial plan is about setting goals, prioritizing, and determining a strategy to meet those goals. At the beginning of someone’s financial journey, retirement is not the highest priority and that is okay. Financial goals, much like financial plans, are dynamic and evolve overtime as a person’s financial circumstances change. One day retirement may become part of the financial plan but it doesn’t have to be part of your financial plan from the jump.
Myth #4 – Financial planning is a one-time exercise.
As I mentioned in the last myth-buster, financial planning is a dynamic and ever-changing exercise. To only go through the exercise once is short sighted. As an example, think about the last time you went to the doctor for check-up. That’s not something you’d only complete once and decide was good enough. If that were the case, you would set yourself on a dangerous path from a health perspective. You see the doctor on a regular basis for peace of mind and to uncover and diagnose any significant changes. For the same reason, it’s important to constantly revisit a financial plan to ensure your finances are still trending in the right direction and uncover and address significant financial changes.
Revisiting the plan ensures you are on target to meet your financial goals, but it becomes an opportunity to make changes and re-prioritize financial goals. My recommendation is to revisit your financial plan at the very least once a year. Even in a year without significant changes, an annual review provides confidence and reassurance.
Well there you have it! These are the most common financial planning myths that I love debunking for my clients. I’m curious if there are other misconceptions about financial planning out there? I welcome you to drop a comment below or reach out directly to start a conversation.
If you’re feeling compelled to create your own financial plan, feel free to reach out on my contact page or drop me an email at firstname.lastname@example.org .