Why Financial Planning Matters

Not many Americans have their financial house in order.

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Roger Wohlner

Over the past couple of years I’ve written a number of pieces for advocating the need for a financial plan. As we go forward in 2013 the need, in my opinion, has never been greater. The economy is in flux and there is much uncertainty over the direction of the markets (sounds familiar huh?). We are living longer and much has been written about the looming retirement crises in this country.

Last year the National Association of Personal Financial Advisors (NAPFA), the largest professional organization of fee-only advisors in the country (full disclosure: I’m a member) published a great infographic about the importance of financial planning. Here are some its key points:

  • 56% of U.S. adults lack a budget.
  • 40% of U.S. adults were saving less in 2012 than in 2011.
  • 39% of U.S. adults have no non-retirement savings
  • 41% of Baby Boomers do not have a will.
  • 50% of Americans with children have no will.
  • In 1991 only 11% of American workers expected to retire after age 65. In 2012 that percentage had risen to 37%.
  • These are just a few statistics highlighting the lack of retirement readiness in American and the general poor state of the finances of many Americans. Certainly the financial meltdown of 2008-09 didn't help this situation, but the problem is bigger than that.

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    Financial planning is not a cure-all, but it can help. How does financial planning work? Here are a few more points from the NAPFA chart.

    Financial planning involves:

    • Sharing and articulating your life goals and values with a financial planner who will use these as a foundation of his/her advice.
    • Determining your net worth and identifying all of your assets and liabilities. This may sound trivial, but I can’t tell you how often it’s a revelation for some clients.
    • Gathering detailed information about your daily, weekly, monthly and annual expenses.
    • Constructing a cash flow statement.
    • Analyzing your spending habits.
    • Discussing and analyzing various planning assumptions, such as rates of return and risk, as well as establishing long and short-term financial goals.
    • Some of the questions that a financial planner can answer include:

      • When can I retire?
      • What is the impact of marriage or divorce on my financial situation?
      • What is the best way to save for my children’s college education?
      • What is my net worth?
      • What is the financial impact of having children?
      • How much house can I afford?
      • How much do I need to be saving to achieve my various short and long-term financial goals?
      • How much do I spend and where is my money going?
      • Are my investments appropriate for me and am I diversified? Does my allocation reflect my risk tolerance? What type(s) of insurance do I need?
      • Am I taking full advantage of the benefits offered by my employer?
      • How will inflation impact my retirement goals?
      • Is my estate planning up to date and does it fit my situation?
      • As a practicing fee-only financial planner my view is likely biased, but I am comfortable saying that most people could benefit from a relationship with a financial planner. While you might be able to do this yourself, the reality is that you might lack the necessary time to devote to this and you don’t have the third-party perspective to objectively look at your situation. Financial planners work with clients on a one-time basis, an as-needed basis, or via an ongoing relationship. If you decide that 2013 is the year to get a financial plan in place (or to update an older existing plan) find a fee-only adviser to help (once again I’m injecting my own biases).

        Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations, and endowments. Roger is active on both Twitter (@rwohlner) and LinkedIn. Check out Roger's popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments, and retirement plans.