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How Financial Planning Helps You Do Better

By Christy Bieber – Feb 21, 2020 at 10:31AM

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You'd be surprised how much it can improve your money management skills

Making a financial plan doesn't necessarily seem like the most fun thing to do. After all, budgeting can be tedious and can feel restrictive. And while setting goals is enjoyable as you envision what you can do with your money, deciding how much to actually save for retirement and other objectives often means making tough choices.

But while you may dread the process of financial planning, you're almost surely going to like the results. That's because a recent Schwab study found that people with financial plans just do better with many aspects of managing their money. When you're able to improve your situation through careful planning, this can eliminate a lot of stress and help ensure you're setting yourself up for future success. 

Woman looking at notebook and computer with calculator in front of her.

Image source: Getty Images.

Financial planners do better with money management

According to Schwab's 2019 Modern Wealth Survey:

  • Financial planners are much more likely than nonplanners to have an emergency fund. Nearly 70% of people with a financial plan have this fund to help cover surprise expenses, compared with just 26% of nonplanners. 
  • Planners also are more likely to automate savings, with 74% of those who have a financial plan investing money automatically, compared with just 25% of nonplanners.
  • Avoiding debt is also easier for financial planners, 45% of whom don't carry a credit card balance, always pay loans on time, or have no debt payments they owe. Just 27% of nonplanners can say the same. 

Staying on top of debt, being prepared for emergencies, and investing funds automatically can make your life a lot easier. You won't have to worry about how you'll cover the costs when things go wrong, you won't waste your hard-earned cash on interest charges, and hopefully your savings will grow into a nest egg that allows you to make big purchases and enjoy a comfortable retirement

Creating a financial plan that works for you

There are a few key components of a successful plan. You'll need specific goals you want to accomplish and a budget to help you achieve them. 

Start by deciding what you hope to accomplish with your money. This could include things like saving up a fund to cover emergencies; a savings account dedicated to home and car repairs, a vacation fund, and of course an appropriately sized retirement nest egg. You may also want to include repaying debt as one of your goals. 

Each goal you set should be specific, rather than a vague wish to accomplish something. Instead of just setting a goal of saving more for retirement, specify that you want to save 15% of your income. Or instead of aiming to save a house down payment, set a goal of saving $500 a month toward your homeownership dreams.

Once you have some specific goals in mind, make a budget that includes needs, wants, and savings. There are different ways to budget, including giving every dollar a job or a simpler 50-30-20 budget where 20% of your money goes to savings, 30% to discretionary spending, and 50% to fixed costs. You can experiment with each type to see what works for you. The key is to make sure you know what your money should be doing and to allocate an appropriate amount to savings.

Once you're budgeting and saving, you should be in good shape -- especially if your budget allows you to build up a nice emergency fund and repay your debt ahead of schedule. If you owe a lot on your debt, you may also want to consider refinancing what you owe to a lower-interest personal loan so you have one affordable monthly payment as well as a fixed date to become debt-free. 

Make your financial plan today

There are clear benefits to sitting down and making a financial plan. While it may take time for your efforts to pay off, if your plan enables you to save money, create an emergency fund, and get on top of your debt, it will be well worth the effort. You'll have less financial stress now and will set yourself up for a more secure future.

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