Why Do a Financial Plan

When I read the article from the Globe and Mail entitled “Why Do I Need a Financial Plan“, I thought about why people do not have financial plans.  When I meet clients, friends or family and the question of whether they have put together a financial plan is raised, I usually get one of three answers:  1) I don’t have time, 2) I don’t know how, or 3) I don’t want to know.

The first two responses are understandable.  Many people consider financial planning to involve elaborate analysis of numbers, pretty growth charts and graphs, and a necessary knowledge base around investment, insurance and tax.  People may feel like they don’t have the time or the know-how to get started on their financial plan.  As a consequence, these people tend to be reactionary in nature.  For example, they may respond to concerns about their investment strategy after their statement shows a significant loss for a period of time.  They might comment on the need for insurance coverage after they experience the loss of a family member which can place considerable hardship on their surviving family members.  They might consider financial planning tips and traps only after they have decided to retire (the latter is usually followed with the comment “I wish I knew this 10 years ago”).

Financial planning is proactive in nature.  It takes a financial snapshot of what you own, who you owe, where your periodic money comes from and where it goes.   Once this snapshot is completed, an experienced financial planner can in relatively quick order highlight the strength and weaknesses of your current situation and make recommendations that fit your circumstances.  In my experience, I can usually highlight up to 6 action plan points within an introductory 2 hour comprehensive financial planning meeting where you have completed a MGF Financial Planning Form in advance. Typically after my meetings, people feel more comfortable about their financial plan.  They have a clear understanding of the key matters that impact them.  They have bite-sized actions plans to work on in order to improve their circumstances

At this point, I’ll address the group that says “I don’t want to know” when they are asked about their financial plan.  For the many that I have met that had this as their initial reaction, it was followed by a sense of relief and appreciation once the 2 hour comprehensive financial plan was completed.  The fear of the unknown is often more daunting than what one would feel when clarity is provided and an action plan to improve a situation is presented.  Be proactive with your financial plan.