Financial Planning Guide 2024 – Newsweek Vault (2024)

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Financial Planning Guide 2024 – Newsweek Vault (1)

By

Lee Huffman

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Lee Huffman

Contributor

Lee Huffman spent 18 years as a financial planner and corporate finance manager before quitting his corporate job to write full-time in 2018. He has been writing about early retirement, credit cards, travel, insurance and other personal finance topics since 2012. Lee enjoys showing people how to travel more, spend less and live better by taking control of their finances. When Lee is not getting his passport stamped around the world, he’s researching methods to earn more miles and points toward his next vacation.

His writing can be found on many popular travel and personal finance websites such as The Points Guy, U.S. News, Forbes and NerdWallet. You can follow Lee’s travels at BaldThoughts.com or listen to his weekly travel podcast at WeTravelThere.com.

Read Lee Huffman's full bio

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Claire Dickey

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Claire Dickey

Senior Editor

Claire is a senior editor at Newsweek focused on credit cards, loans and banking. Her top priority is providing unbiased, in-depth personal finance content to ensure readers are well-equipped with knowledge when making financial decisions.

Prior to Newsweek, Claire spent five years at Bankrate as a lead credit cards editor. You can find her jogging through Austin, TX, or playing tourist in her free time.

Read Claire Dickey's full bio

Updated January 23, 2024 at 12:27 pm

Editorial Note: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.

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Whether you’re saving for retirement, a new home, college or another goal, having a solid financial plan is key to your success. Financial planning can also help you pay off your debt and reach financial independence. In this article, you’ll learn what a financial plan is, some basic finance terms and whether you need to hire a financial advisor to implement your plan.

Vault’s Viewpoint

  • Financial planning helps investors to understand their current money situation and identify strategies to meet their short- and long-term goals.
  • A financial plan can be comprehensive or target a specific area of your finances, depending on your time and budget.
  • Customize goals and tactics to personalize your financial plan and improve your odds of success.

What Is Financial Planning?

Financial planning is the process of understanding your current financial situation, creating money goals and developing a plan to reach them. Your financial plan should include a mix of short- and long-term goals targeting different aspects of your money situation.

Examples of short-term goals include saving for a house down payment, covering your child’s tuition and paying off your debt. Long-term goals may include buying a vacation home, saving for retirement and creating generational wealth.

Types of Financial Plans

There are many different types of financial plans to use depending on what your goals are. However, personal financial planning often boils down to a few categories:

  • Comprehensive financial plan. With a comprehensive financial plan, you’ll work with an advisor who will address all areas of your money, including debt, investing, savings, retirement, income, taxes and estate planning. No stone will be left unturned as the advisor helps to improve your financial situation in each of these categories one step at a time.
  • Topic-related financial planning. Many investors only want or need help with a limited number of topics. They seek out specialists who can offer advice on one topic and then implement those strategies to optimize that aspect of their finances. For example, an estate planning attorney for a living trust, a CPA for taxes or an insurance agent for life insurance.
  • Portfolio management. Some investors choose financial planners solely based on their ability to provide guidance on their investments. These advisors seek investments to help clients meet their investing goals without addressing other facets of their finances, like insurance, taxes or estate planning.
  • Robo-advisors. A robo-advisor is an automated investing platform that offers portfolio management without providing personal advice. Clients generally invest in predefined portfolios based on their goals and risk profiles. Many robo-advisors also offer resources for self-study on financial planning topics that clients can access.

Do I Need To Hire a Financial Planner?

Many investors choose to create their own financial plans without the help of a financial planner. There are numerous tools and resources online, through mobile apps or in books that help people reach their financial goals on their own.

However, you find it worthwhile to hire a financial planner or other expert for some or all of your financial planning needs. These experts often have licenses, training and certifications in specific areas of personal finance that can complement your own knowledge. Depending on the type of expert, they may charge a flat fee, an hourly rate or a percentage of your investments.

How Can Financial Planning Help Reach My Goals?

While you may have goals in mind, you might be unsure of how to reach them. Through financial planning, you can go down the right path to successfully achieve your goals and enjoy other benefits along the way.

Build Confidence

Financial planning builds confidence because you have specific steps to take toward your goals. This takes the guesswork of what steps to take and in what order they should be done. You can also track your accomplishments and progress, which can sustain your efforts whenever you feel like the effort and sacrifices are not worth it.

Get Started

The only way to reach your goals is to take that first step. For retirement or buying a home, this could be opening your account and making that first deposit. To pay off debt, this could be making extra payments to reduce your balance and lower the interest charges. No matter what your goals are, having a written financial plan can help you figure out how to get started as you build momentum toward reaching your goals.

Create an Investment Portfolio

Your investment portfolio should be customized to your goals, time horizon and appetite for risk. When you hire a financial planner, they’ll customize a portfolio to suit your needs. You can also access numerous online tools (many of which are free) that can build a solid portfolio based on your answers to an investment questionnaire.

Continue investing in this portfolio no matter how the market performs. This is known as dollar cost averaging, which allows you to buy more shares when the market is down and less when it’s up. Then, rebalance periodically to ensure you don’t become concentrated in any one type of investment.

Build Better Habits

Financial plans help investors build better habits because there’s less guesswork on how to handle money. Money has defined goals, so it can be allocated immediately before it is spent frivolously. As you notch small wins, your confidence will grow and positive behaviors become habitual. With each short-term goal accomplished, you can monitor progress toward future goals and adjust behaviors accordingly to reinforce your habits.

Customize Your Approach

While there are many financial rules of thumb, it’s important to remember that personal finance is personal. What works for one person may not work for another. Create goals that matter to you, then develop strategies to achieve those goals based on your income, expenses, debt and other factors that influence behaviors.

How To Create a Financial Plan

Creating a financial plan will be different for every person. However, there are key elements that investors should consider when creating their plan to increase the chances of successfully reaching their goals. Here are a few simple steps to include in your plan.

  • Hire an advisor vs. DIY. While there are numerous tools and resources available to create your own financial plan, it can be wise to hire an advisor if you don’t have the time or expertise.
  • Scope of the financial plan. What areas of your finances will the plan cover? Some people want a comprehensive plan that covers all areas of their money, while others choose to focus on a single area.
  • Assess your current financial situation. Before developing goals and a plan of action, it is important to understand what your current financial situation is. Take note of your income, disposable income, monthly expenses, debt payments and current savings and investment balances.
  • Set goals. Determine what your goals are, and make them S.M.A.R.T.—specific, measurable, achievable, relevant and time-bound.
  • How much time do you have? Knowing when you want to achieve goals helps to create a realistic plan of action. The timeframe also impacts how much you need to contribute and how much risk is necessary to reach the goals.
  • How will you track progress? Keeping track of progress toward your goals can sustain your motivation and alert you if you’re falling behind. Additionally, if you’re well ahead of your goals, you may be able to reduce contributions and risk or adjust the goal entirely.
  • What does success look like? When you reach your goals, what will that look like for you? Envision yourself retiring from your job, watching your child get their diploma or opening the door to your new home. Having these visions can motivate you to avoid distractions and stay focused on your goals.

Hiring a Financial Planner vs. a Robo-Advisor

Investors have numerous options when creating a financial plan for their investments. Traditionally, you’d work with a licensed financial planner who would recommend investments that matched your investment profile. These planners typically charge a flat fee, an hourly rate or a percentage of the assets under their management.

However, many financial planners require a minimum portfolio amount before they’ll work with you. While established investors can easily meet these hurdles, newer investors may be years away from qualifying. Robo-advisors level the playing field by allowing investors to participate in sophisticated portfolios even when they don’t have much money. They offer lower costs and reduced minimum investments, but they typically don’t provide access to personalized financial advice.

Financial PlannerRobo-Advisor
CostFlat fee, hourly rate or percentage of assetsAs low as 0%
Minimum Investment AmountVaries based on the plannerAs low as $0
Investment OptionsVaries, but can be unlimitedGenerally predetermined portfolios
AdvicePersonalized advice based on an interview with a plannerGeneral advice through online lessons and tools

Frequently Asked Questions

What Are the Five Key Areas of Financial Planning?

A financial plan should address the major areas of your money, which include investing, retirement planning, estate planning, taxes and protection. While each of these areas is important, you likely will not be able to address all of them at once or with a single advisor. Start with the area that’s most important to you today, then build upon your success by adding additional factors as you establish good financial habits.

What Are Three Traits of a Financially Healthy Person?

Each person approaches their finances a little differently based on their experience, background and current financial situation. However, to become a financially healthy person, you should strive to avoid debt, have a good credit score and stick to a budget that includes being able to save and invest.

What Income Do You Need To Be Financially Stable?

The income required to be financially stable varies based on where you live and what your money habits are. According to a recent survey from Moomoo Financial, almost 70% of Americans said you can be financially stable with a household income under $100,000. With the average U.S. median household income at just under $75,000, according U.S. Census Bureau data, many families have the resources necessary to achieve their financial goals.

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Editorial Note: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.

Financial Planning Guide 2024 – Newsweek Vault (6)

Lee Huffman

Contributor

Lee Huffman spent 18 years as a financial planner and corporate finance manager before quitting his corporate job to write full-time in 2018. He has been writing about early retirement, credit cards, travel, insurance and other personal finance topics since 2012. Lee enjoys showing people how to travel more, spend less and live better by taking control of their finances. When Lee is not getting his passport stamped around the world, he’s researching methods to earn more miles and points toward his next vacation.

His writing can be found on many popular travel and personal finance websites such as The Points Guy, U.S. News, Forbes and NerdWallet. You can follow Lee’s travels at BaldThoughts.com or listen to his weekly travel podcast at WeTravelThere.com.

Read more articles by Lee Huffman

Introduction

As an expert in financial planning and personal finance, I can provide you with valuable insights and information on the concepts mentioned in the article you shared. I have extensive knowledge and experience in this field, having spent 18 years as a financial planner and corporate finance manager before transitioning to full-time writing in 2018. I have been writing about early retirement, credit cards, travel, insurance, and other personal finance topics since 2012. My work has been featured on popular travel and personal finance websites such as The Points Guy, U.S. News, Forbes, and NerdWallet.

Financial Planning Basics

Financial planning is the process of understanding your current financial situation, setting money goals, and developing a plan to achieve them. It involves creating a comprehensive strategy that encompasses various aspects of your finances, such as debt management, investing, savings, retirement planning, income, taxes, and estate planning. A well-designed financial plan can help you make informed decisions, track your progress, and ultimately reach your financial goals.

Types of Financial Plans

There are different types of financial plans that cater to specific needs and goals. Here are some common categories:

  1. Comprehensive Financial Plan: This type of plan covers all areas of your finances and is typically developed with the assistance of a financial advisor. It addresses debt management, investing, savings, retirement planning, income, taxes, and estate planning.

  2. Topic-Related Financial Planning: Some individuals may seek advice on specific financial topics, such as estate planning, taxes, or insurance. They consult specialists who can provide guidance and implement strategies related to those specific areas.

  3. Portfolio Management: Investors who primarily focus on their investment strategies may choose financial planners who specialize in portfolio management. These advisors help clients optimize their investment portfolios to meet their financial goals.

  4. Robo-Advisors: Robo-advisors are automated investing platforms that offer portfolio management services without personalized advice. They provide predefined portfolios based on clients' goals and risk profiles, often at lower costs and with reduced minimum investment requirements.

Hiring a Financial Planner

While many individuals create their own financial plans using online tools and resources, hiring a financial planner or expert can be beneficial, especially if you lack the time or expertise. Financial planners often have licenses, training, and certifications in specific areas of personal finance, which can complement your own knowledge. They can provide personalized advice, help you navigate complex financial decisions, and optimize your financial strategies based on your unique circ*mstances.

When considering hiring a financial planner, it's important to understand their fee structure, which can be a flat fee, an hourly rate, or a percentage of your investments. Additionally, you should assess their expertise, credentials, and track record to ensure they align with your financial goals and values.

Benefits of Financial Planning

Financial planning offers several benefits that can help you achieve your goals and improve your overall financial well-being:

  1. Build Confidence: A well-designed financial plan provides specific steps and strategies to reach your goals, eliminating guesswork and increasing confidence in your financial decisions. Tracking your progress and accomplishments can further motivate you to stay on track.

  2. Get Started: Financial planning helps you take that crucial first step towards your goals. Whether it's opening an investment account, making extra debt payments, or allocating your money wisely, a written financial plan provides a roadmap for getting started and building momentum.

  3. Create an Investment Portfolio: A financial plan helps you customize your investment portfolio based on your goals, time horizon, and risk tolerance. Whether you work with a financial planner or use online tools, a well-structured portfolio can help you achieve your investment objectives.

  4. Build Better Habits: Financial plans instill good financial habits by providing clear guidelines on how to handle money. By setting defined goals and allocating your resources accordingly, you can develop positive behaviors and reinforce them as you achieve short-term milestones.

  5. Customize Your Approach: Personal finance is unique to each individual, and financial planning allows you to tailor your strategies to your specific circ*mstances. By creating goals that matter to you and considering factors such as income, expenses, and debt, you can develop a plan that aligns with your values and priorities.

Creating a Financial Plan

Creating a financial plan involves several key steps to increase your chances of success:

  1. Hire an Advisor vs. DIY: Consider whether you have the time, expertise, and resources to create your own financial plan. If not, hiring a financial advisor can provide valuable guidance and expertise.

  2. Scope of the Financial Plan: Determine which areas of your finances the plan will cover. Some people prefer a comprehensive plan that addresses all aspects, while others focus on specific areas of interest.

  3. Assess Your Current Financial Situation: Before setting goals and developing a plan, it's important to understand your current financial situation. Evaluate your income, expenses, debt payments, savings, and investment balances.

  4. Set Goals: Define your goals and make them S.M.A.R.T. (specific, measurable, achievable, relevant, and time-bound). Consider the timeframe for achieving each goal and the necessary contributions and risk levels.

  5. Track Progress: Regularly monitor your progress towards your goals. This helps you stay motivated, make adjustments if necessary, and celebrate milestones along the way.

  6. Envision Success: Visualize what achieving your goals will look like for you. Whether it's retiring, buying a home, or funding your child's education, having a clear vision can keep you focused and motivated.

Financial Planner vs. Robo-Advisor

When creating a financial plan for your investments, you have the option to work with a financial planner or use a robo-advisor. Here are some key differences:

  1. Financial Planner:

    • Cost: Financial planners charge a flat fee, an hourly rate, or a percentage of assets.
    • Minimum Investment Amount: Varies based on the planner.
    • Investment Options: Varies, but can be unlimited.
    • Advice: Personalized advice based on an interview with the planner.
  2. Robo-Advisor:

    • Cost: Robo-advisors often have lower costs compared to traditional financial planners.
    • Minimum Investment Amount: Some robo-advisors have no minimum investment requirement.
    • Investment Options: Generally, robo-advisors offer predefined portfolios based on clients' goals and risk profiles.
    • Advice: Robo-advisors provide general advice through online lessons and tools, but not personalized advice.

It's important to consider your specific needs, preferences, and financial situation when deciding between a financial planner and a robo-advisor.

Conclusion

Financial planning is a crucial aspect of achieving your money goals. Whether you choose to create your own plan or work with a financial planner, having a well-designed financial strategy can provide clarity, confidence, and a roadmap for success. Remember to customize your approach, track your progress, and make adjustments as needed. By taking control of your finances and implementing a solid financial plan, you can work towards a more secure and prosperous future.

Financial Planning Guide 2024 – Newsweek Vault (2024)

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