When do you need a financial plan?

While you may understand the importance of having a financial plan, deciding when you need one is not always so clear. Often, people delay creating a financial plan because they either assume they don’t have enough money or believe it’s just too complex.

In fact, according to Charles Schwab’s 2021 Modern Wealth Survey, only about a third of Americans have a written financial plan. And when asked why they don’t have a financial plan, 42% of people said it’s because they don’t think they have enough money to merit a formal plan, while 22% reported that it is too complicated, and 19% said they simply don’t have the time.

Unfortunately, this causes many Americans to put off planning for another day, leading to increased financial stress and poor financial outcomes. But the question remains: how do you know when you need a financial plan? Read on to find out.

5 reasons to consider setting up a financial plan.

1. You have financial goals, hopes, or dreams.
   A financial plan can be essential if you have financial goals or aspirations. That’s because a financial plan allows you to list out all of your financial goals and helps you draft a roadmap to get there.
2. You are earning an income.
   If you are earning money, then a financial plan may be worthwhile. That’s because regardless of your income, you must make decisions with your money. For example, should you be saving for retirement or paying off your student loans?
3. You are experiencing OR expecting a significant change or life transition.
   A financial plan can be critical during these life transitions, helping you understand how these changes will impact your financial goals and helping you know exactly what to do next.
4. You have others depending on you.
   Having a written financial plan becomes critical when others are depending on you. A well-written plan will help you plan for potential worst case scenarios and help provide income for your dependents and loved ones if you were to pass away.
5. You feel lost, unorganized, or stressed about money.
   72% of Americans report feeling stressed about money at least sometime in the prior month—that’s according to the APA’s Stress in America survey. Unfortunately, financial stress is shown to lead to poor financial decision-making, creating a negative snowball effect.

In the end, while many believe they don’t have enough money to need a financial plan, the truth is that most people need and would benefit from a financial plan. When it comes to creating a financial plan, keep in mind that often the key is just to get started today. Choose one aspect of your financial life like investing, retirement, budgeting, or estate planning, and start there. It does not need to be perfect from day one, and it will take time to do it all, but every step gets you closer to reaching your ultimate financial goals.