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Why One Should Create a Financial Plan in 2022

Why One Should Create a Financial Plan in 2022

January 13
04:24 2022

The New Year is an opportunity to start fresh. People can make New Year’s resolutions to get healthier, finally start that side hustle, or connect with old friends. But the one thing everyone should have on their to-do list for the coming year is to create a financial plan.  For those that don’t have one or are on the fence about taking time to make one, here’s why people should create a financial plan in 2022.  

What Goes into a Financial Plan?  

Before exploring why people need a financial plan, it’s important to review what’s involved in making one. A great financial plan acts as a roadmap. It includes:  

Short-term goals: These goals are near future, think in the next 0-7 years, and may include things like saving a down payment for a house or paying for next summer’s family vacation.  

Long-term goals: Long-term goals include anything that’s more than 8-10 years out, like retirement or funding a young child’s education.  

Investing strategy: An investing strategy encompasses what accounts one currently has and how much is going into each. It also outlines risk tolerance, asset allocation, and a plan for investments over time.  

Protection and savings: Emergency savings and life insurance policies are a few types of financial tools that offer financial protection. For example, a whole life insurance policy can help protect loved ones with a death benefit payout and offer an additional savings opportunity. 

Debt management: A financial plan should outline existing debts, including how much someone owes, the interest rate, and how much they’re paying each month. A great plan also details one’s strategy to repay debt and their anticipated debt-free date. 

3 Great Reasons to Create a Financial Plan 

While there are plenty of reasons to create a financial plan, these three are most impactful. 

1. Identify gaps. A financial plan provides a holistic view of finances, which enables someone to assess if their investments are too heavily weighted in one area. For example, one may be contributing to a pre-tax 401(k) and IRA but has no active after-tax assets like a taxable brokerage account or whole life insurance policy. 

2. Maintain accountability. A great financial plan serves as a benchmark to keep someone moving toward their goals. And it also lets them know when they’ve stopped moving or are even backtracking in the wrong direction. Following a financial plan keeps one accountable to continue working toward goals until they’re finished. 

3. Get motivated.  Seeing progress on a financial plan can motivate people to stay the course. Watching savings and investments grow year over year and monitoring how one is tracking toward financial goals can encourage them to regularly strive to meet new goals.  

The Bottom Line  

A financial plan can be beneficial for anyone, regardless of their current financial situation. By outlining goals and touching on aspects of personal finance from investing to protection, one is able to identify gaps, stay accountable, measure progress to make necessary changes, and stay motivated to see it through. Each of these benefits is a great reason to start creating a financial plan today. 

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