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The Top Five Reasons You Need a Financial Plan

The below content is provided by our friends at Pocketnest, and does not reflect financial advice from Service Credit Union. Service CU’s Fin-Life app for financial wellness is powered by Pocketnest. Download it today on the App Store or Google Play!

Planning isn’t everyone’s thing. Some of us are natural planners that love to have everything mapped out in front of us so we can see where we’re going. Others of us are more prone to just winging it. Turns out, both of these styles can work (most of the time)!

When it comes to finances though, this is the one area where, for most people, winging it without some form of a plan is more likely to end badly. Finances are the glue that holds modern life together. Failing to properly plan out yours could be disastrous.

For those of us who aren’t natural planners, this might be a hard notion to hear, and even harder to accept and act upon. So, we want to help convince you a little bit more, and give you 5 reasons why you do need a financial plan.

For confidence and certainty

Although it may seem impossible to know what tomorrow holds, that uncertainty can be made a lot lighter by knowing that you’re financially prepared for whatever might come your way. Having a financial plan allows you to confidently expect the unexpected, and have a certainty that everything will be okay, even when it isn’t.

Just for the sake of example, let’s say your car requires a sudden, unexpected repair that’ll cost approximately $1,400 to remedy. Well, with a plan already in place for a scenario like this, $1,400 will sting, but not cripple your finances. That’s because you’re already prepared for it.

Money doesn’t always mean safety, that’s for sure. But it can provide a sizable amount of it for many of life’s happenings, and alleviate a lot of anxiety and scrambling along the way.

Because life is expensive

It’s pretty expensive to be alive. #amirite?! That’s a valid perspective to have, but unfortunately, a modern economy with modern luxuries comes with the modern problem of having costs. Suffice it to say, the cost of living has gone up drastically over time, and wages hardly keep up for most individuals.

Over the last two years alone, as of 2022, the baseline monthly cost of owning a home has increased from an average of $1,483 to $2,259. Now that’s an (un)healthy chunk of most workers’ monthly income! The cost of everything else has increased exponentially in recent years too, and a new car now costs nearly the same as a down payment. No bueno!

This stinks and all, but the bad is made even worse by not having a plan and not budgeting for these increasing expenses. Sure, a plan can only solve so much without the proper income, but it’s an integral part of the path to financial freedom along the whole journey.

Being ready for the unexpected

You’ve probably heard about emergency funds, right? The idea behind them is obvious, expecting the unexpected so you can absorb sporadic financial events that might otherwise debilitate your bank account had you not had that cash reserve to fall back on.

This is a key aspect of having a financial plan, and maybe even the foundational piece. An emergency fund looks different for everyone, but it usually encompasses at least 3-6 months of estimated expenses in the event of income loss, and sometimes more. Having this in place is a lifesaver, and the definition of being ready for the unexpected.

Having a financial plan isn’t only beneficial for unexpected personal emergencies though, but also for unforeseen macroeconomic changes that inevitably impact us, too. Inflation, rising interest rates, or even a bear market that causes your portfolio to take a hit—these are all events that impact our finances in one way or another. Saving money and creating alternatives ahead of time, to help cushion the blow, can be a big help.

Preparation for the future

Aside from being ready for an emergency, being prepared for the future might be the most important benefit a financial plan has to offer. The future is only as safe as we make it with our work in the present. Setting yourself up later in “the now” is critical to your overall financial health.

Of course, we’re mostly talking about retirement here, and this undoubtedly requires a lot of planning and diligence. It’s easy to forget about, especially when it seems so far away for some of us. But, suffice it to say, it’s important to start planning ahead for this inevitable part of life as soon as possible.

To achieve financial freedom

This is the icing on top of the financial planning cake. The ultimate goal for all of us is to achieve financial freedom, which has a different meaning for everyone, yet a similar implied end game regardless of the specifics.

Planning is what gets us there. By creating a roadmap for your finances, it’s much easier to reach your destination than if you were driving aimlessly. Whether it’s a short-term plan to pay down debt, or a long-term goal for the distant future, a well-thought-out plan followed diligently will always get you to the finish line.

Creating your own comprehensive financial plan

The best time to start crafting a financial plan for yourself was yesterday, and the second best time to start is today. (Don’t worry—we’ve got you!) The key is not to rush to get it done, but rush to do it well, and do it thoroughly. A financial plan is only as good as its contents, so ensuring your plan is comprehensive and includes all areas of your financial wellness is extremely important.

And, the best news: it only takes 3 minutes a week! You’re likely already ahead of the curve though, because you’re here! But that doesn’t mean there’s not always room to improve, right? Right, so this is your friendly reminder to keep a check on your to-do list items in your app, and don’t forget to log at least 3 minutes per week using Fin-Life to achieve financial wellness.