Having been involved in the financial planning field for a while, I have heard and seen many misinterpretations of financial planning. Last year I ran a few posts about financial planning and the steps involved in this process. However, this article highlights some of the financial planning myths that continue to surround us.
Myth: Financial Planning is Only for the Rich
This is the most common myth I hear. Often people assume financial planning is only for the rich and those who have money; the truth is that financial planning is more important for those who are not rich. Having a written financial plan is vital to your long-term success. If you do not have much in savings and are not sure where your money goes, than you need to sit down and develop a financial plan. Financial planning is not just for the rich, or for the poor for that matter, it’s for everyone.
Myth: Financial Planning is Investing
This myth stems from the first one. Although investing is one component of proper financial planning, it is not all about investing. Financial planning includes budgeting, estate planning, insurance, savings and more. At first your financial plan maybe fairly simple, just budgeting and saving, but as you go on your financial plan will get more complicated.
Myth: Financial Planners Only Provide Investing and Retirement Advice
This again is related to the earlier assumptions. Although a big part of a financial planner’s job is investing and portfolio construction that is not all they do. Financial planners, well the good ones, will help you with all aspects of your financial needs from budgeting to cash flow management, portfolio construction and estate planning. A good financial planner takes a holistic approach to your financial planning and ensures all aspects of your finances are well taken care of.
Myth: I Don’t Have to Worry, I Have a Financial Planner Who Takes Care of My Money
Nobody cares about your money as much as you do. Although financial planners are supposed to look out for their clients’ best interests, it does not always work that way. Sometimes there is a conflict of interest, other times the financial planner’s idea does not align with yours. Bottom line is, do you really want to leave your hard earned dollars and life savings to a third party to take care of? Often financial planners, good ones, can be great resources to have but you should never solely rely on them.
Myth: It is too Early for Me to Plan for Retirement, I am too Young.
First of all, it is never too early for retirement planning; moreover retirement planning is not the same thing as financial planning. Retirement planning focuses on your retirement goals such as your income at retirement, your lifestyle and other potential passive income streams. As mentioned several times earlier, financial planning is very broad and it can potentially encompass retirement planning but these two are not the same. You can never be too young to set up a financial plan. Although your financial plans will change throughout your life but at least you have a map and know where you want to go.
When it comes to financial planning, there are no rules of who needs to do it and who doesn’t. Everyone needs to have a financial plan. Even though your goals will be different than your friends you still require a financial plan to reach those goals. Think of financial plan as your road map to reach your destination, you may reach there without a map but it can cost you a lot more money and time.