What Is Financial Planning and How Can It Help?

From the beginning, my goal with this site has been to make it easier for you to create your own personal financial plan.

It’s the reason I write these blog posts. It’s the reason I host webinars. And it’s the reason I work one-on-one with clients who want a little more guidance.

But what exactly is “financial planning”? There are a lot of different ideas out there about what it is, and a lot of different types of people who call themselves financial planners or financial advisors. And that can make it a little confusing when you sit down to create your own plan. With all those different definitions out there, how do you know what to focus on?

I believe that in order to create a good financial plan, you need to have a clear definition of what “financial planning” actually means. That definition will help you focus on the things that matter, ignore the things that don’t, and make a plan that actually helps you reach the personal goals that matter most.

So this month on the blog we’re going to be talking about financial planning: what it is, how to make your own plan, and how to get some help if you need it.

And today we’re going to start with the first, most basic questions: what is financial planning and how can it help?

Here’s my opinion, based on my professional experience as a financial planner and my personal experience as a dad trying to make the right decisions for my family.

What financial planning ISN’T

First, I’d like to clear up some misconceptions about financial planning. Here are some things it isn’t.

Financial planning isn’t about picking stocks, timing the market or trying to beat the market.

In fact, it’s not even all about investing. Investing gets a lot of press, and many people think of financial advisors as people who manage your investments for you. And while investing is an important piece of your financial plan, it’s still just one piece and not the entire focus.

Financial planning isn’t just for rich people. Everyone should have a plan for how they use their money, and one of my big goals is to make it easier for you to make your own plan, no matter how much money you have or where you’re starting from.

It’s not one-size-fits-all. While there are certainly some good practices to follow, everyone’s goals are different and therefore everyone’s plan will have to be different.

It’s not about cutting out all spending. Yes, you will have to make decisions about how to prioritize your money, and that will likely include reducing some spending in some areas. But this isn’t about judging how you spend your money, cutting things down to the bare bones or cutting out things you enjoy. It’s about making sure you’re using your money purposefully.

Which takes us to…

What financial planning IS

Here’s what I believe financial planning is all about: using your money purposefully to build a life that makes you happy.

A good financial plan starts with a few key questions:

• What is important to you?
• What are your values?
• What do you want out of life?
• What makes you happy?

You’ll notice that none of these questions has anything to do with money. I’m not asking how much you’re contributing to your 401(k) or whether you have all the right insurance.

Instead, I’m asking about your values, your ambitions and your happiness. These are the things that are actually important. The financial stuff is only important to the extent that it helps you work towards that life you want.

So the purpose of a financial plan is therefore to use the financial opportunities available in order to reach those personal goals as soon as possible.

And with that purpose in mind, it follows that financial planning is an ongoing process.

Your situation will change. Your goals will change. Your values will change. That’s just a part of life.

And as those things change, your financial plan will have to change with them in order to keep your financial priorities in line with your life priorities.

Because there are no “right” or “wrong” financial decisions. There are simply financial decisions that are better or worse for what you want to achieve.

Financial planning is first and foremost about your life. Money is just a tool that can help make that life possible.

How can financial planning help?

If you approach your own financial plan from that perspective, it can actually make things a lot easier. You don’t have to worry so much about making the “right” financial decisions, allowing you to focus instead on making financial decisions that enable you to do the things you want to do.

It becomes much more personal, much more empowering.

And there are some big benefits to having a plan that aligns your money with your biggest personal goals.

Less anxiety. More confidence. – With a plan in place, you know that you’re making the right progress towards the right goals. That allows you to live your life with the nagging worry that comes from being unsure whether you’re making the right financial decisions.

More excitement – When you take control of your financial situation, money can actually be exciting and empowering instead of scary and intimidating. You’re using your money to create a life you want, which is pretty darn cool!

More opportunities – The stronger your plan, the more opportunities become available to you. I’ve told my story about being able to start my business in large part because I had such a solid emergency fund. When you’re in good financial shape, you’re able to do things that may otherwise not have been an option.

Reach goals faster – Your personal goals are there for one reason: they are important to you. Making a plan that purposefully works towards them means you’ll reach them sooner, often much sooner than you would have thought possible.

That’s the deal!

So there it is, my definition of financial planning.

It’s first and foremost about the personal goals you have and the life you want to live. From there, it’s simply about taking the financial opportunities available to you and using them to make that life possible.

More than anything, I hope this gives you a helpful perspective as you work to create your own financial plan. With the right mindset, your financial plan can empower you to live the life you want to live.