A natural question one might wonder is why they need a financial plan. You can think of a financial plan as a roadmap to get you from your current location (your current stage in life) to your destination (where you want to be). It’s simple to say you want your destination to be “XYZ”, but getting there without a roadmap may be difficult, especially as you may experience detours (whether desired or undesired), roadblocks, and other diversions that may impede your ability to get to your destination.
Let’s say that you want to travel by car from Atlanta, Georgia to Seattle, Washington. If you look at a map, you know you generally need to head northwest from Atlanta to reach your destination. However, just heading “northwest” isn’t enough to reach Seattle. If you travel to far, you may end up in Juneau, Alaska. If you don’t travel far enough, you may only reach Kansas City, Missouri. Alternatively, if you take a wrong turn, you may finish in Cleveland, Ohio.
- Starting Point – A financial plan will help you identify where you are starting. It may include evaluating your current income, expenses, savings, assets, liabilities, and risks. This may look different depending on your current stage in life.
- Destination – The plan will then evaluate what the ultimate destination is and what direction you need to be heading (it could even be multiple destinations). Maybe you want to be financially independent at age 65, but 10 years before that you want to take a “gap” year and travel the world.
- Setting a Pace – At this point, the plan will identify what pace you need to set to reach your destination. Think of it as what speed your car needs to achieve to travel from Atlanta to Seattle based on how quickly you want to get there. For a 25-year-old, a slow, leisurely pace (savings rate) may be sufficient to reach your destination if you’re consistent each year. For a 55-year-old, your goals may require a quicker pace to reach your destination in a timely manner.
- Detours & Roadblocks – It’s inevitable that any road trip may incur detours and roadblocks. A good navigation system may help you plan for these factors that were unknown at the start of your journey. A financial plan will plan and adapt for the detours and roadblocks in life such as changes in tax law, losing a job, or a child deciding they want to attend the university that may be very costly. This also requires not relying on a one-time plan (the roadmap you bought from the travel agency that is since outdated). Competent planning requires updating the roadmap for changes in life.
- The Destination – Once you reach your destination (Seattle in our example), the chances are you don’t want to just “call it quits”. You actually want to enjoy the city and what it has to offer. A good financial plan doesn’t just account for the time between your starting point and your destination, but it plans for what you will do once you reach your destination. In real life, that period of financial independence could last for several decades and needs to be accounted for.
While online searches can help answer simple questions (like “how much is the IRA contribution limit for 2025?”), a good financial plan takes into account your goals, how those goals fit together, and updates those goals as life changes. It may also involve providing financial coaching and accountability that a search engine can’t provide like an actual person. We are experts at Parable Wealth Advisors in helping clients develop and implement a financial plan for their financial journey. If we can serve you and your family, please contact us
