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The Role of Financial Planning During Times of Uncertainty
As we prepare to celebrate World Financial Planning Day on Oct. 7, maximize this opportunity to get your financial house in order with a financial plan so you can stay above uncertainties.
From the Great Recession to today’s health crisis, we are reminded that there are things that are out of our control. Uncertain times come without an invitation; times that try men’s souls usually appear without advance notice.
How can you be better prepared so these uncertain times don’t destroy your finances? What can you do to build your house on a rock so that when the storm comes, it will still be standing?
Financial Planning and Uncertainties
People without a stable financial plan jump on every movement in the stock market. They buy stocks because everyone is buying and selling them because everyone is selling. Warren Buffett calls it the ”fear-greed” cycle.
People without a financial plan don’t know how to react to uncertainties. Every inversion of the yield curve creates fresh anxiety. They are tossed around like a reed because they don’t have a strong foundation. Such people act on impulse or yield to the crowd mentality. Unfortunately, such people include 72% of Americans. Charles Schwab’s May 2019 Modern Wealth Survey found that only 28% of Americans have a financial plan, while 26% don’t have one at all.
Without a solid financial plan, it is impossible to keep your head up when unemployment, high inflation or a recession hits. It’s difficult for someone with zero emergency funds to handle a job loss or a household with less than $1,000 in savings to endure a recession.
Embracing Financial Planning
Some interesting statistics from the Charles Schwab report show why financial planning is golden:
- People with financial plans are 78% more likely to pay their bills and save every month compared with those without a plan.
- People with financial plans are 68% more likely to have an emergency fund than people without a plan.
- Those with financial plans are 74% more likely to automate a portion of their income into savings.
- Financial planners exhibit better investing habits. The survey shows 85% of planners who invest regularly rebalance their portfolios and 75% consider risk tolerance when investing.
People with written financial plans have a greater feeling of financial stability (63%) compared with those without a plan.
When you have a solid financial plan, you are not swayed by every movement of the stock market or left at rock bottom by every recession.
So, What’s Holding You Back?
A financial plan can keep you focused on your long-term goals so every short-term bump doesn’t distract you from your destination. It’s the only way you can face uncertain times without drowning. So, what’s stopping you from creating and following a financial plan?
Are you among those who believe financial planning is only for those approaching retirement? Well, I have news for you: The earlier you start, the better. The decisions you make now (good or bad) have compound effects on your future. Waiting until you are close to retirement is like an athlete refusing to train or play all season and expecting to be the star of the final match.
If you start planning now, you will enjoy the compound effects of good financial habits. If you are among those who think their income and assets are too small to require planning, remember, no income is too small. Moreover, without a plan, your income will not grow and you might continue to lose it in the fear-greed cycle.
Those who are afraid to think about things like life insurance, estate planning and retirement planning must know it’s better to be prepared for the inevitable rather than shy away and leave it to chance.
Perhaps you are among those who don’t have a clue how to start. Contact a certified financial planner to begin your journey toward financial stability and prosperity.
How Preparation Helps in Uncertain Times
Home builders cannot control rain and storms, but they can build a strong foundation so their houses can withstand adverse weather.
A coach cannot prevent an important player from being injured, but he or she can create a star-studded reserve team so there is a replacement on hand.
Organizations now have risk management offices and risk officers who identify potential risks and put controls and systems in place to mitigate those risks.
These examples show that while we cannot control events and circumstances, we can create and execute plans that help us to stand firm when adverse situations and uncertain times arise.
