“I Don’t Have a Financial Plan” Is Still a Financial Plan.
And it could be costing you hundreds of thousands of dollars.
Everyone does financial planning. Whether you know it or not.
No Financial Plan = A Plan (Just Not a Great One)
Not having a formal financial plan is still a financial plan.
Going with the flow and hoping it all works out? That’s still financial planning.
Avoiding financial decisions? That’s also a decision and it carries consequences.
The Real Cost of a Hands-Off Approach
When it comes to money, every choice has a compounding effect - either helping you build wealth or making your goals harder to reach.
Let’s walk through a hypothetical example to make this real with some financial math.
You got Joey and Ross (Friends reference 😁)
Each needs an additional $1M in their retirement accounts when they turn 65 years old. This extra $1M will allow them to live the lifestyle they want during their retirement years.
Joey will, however, pay $200,000 more of his own money than Ross to get there.
Let’s see why…..
We’ll make the following assumptions:
They are both 40 years old today, so they have 25 years to hit their goal by 65.
They will earn a hypothetical annual rate of return on their investments of 7.5%.
Joey is first: ⤵️
Joey is just going with the flow and winging it with his finances. He doesn’t yet know that he needs an extra $1M at 65. He is not doing any financial planning (ignorance is bliss?).
When he turns 50 (10 years later) a friend forces him to meet with a Financial Planner. Better late than never! They come up with a plan for Joey to get to that extra $1M that he needs by the time he is 65.
Joey’s plan:
Invest $3,085 every month until he turns 65 (that’s 15 years of consistent investing, earning the hypothetical 7.5% return).
That’s a total of $555,464 of Joey’s money.
$444,536 is from the investment growth that gets him to the $1M.
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Now let’s see what happened with Ross. ⤵️
Ross is proactive and he understands that having a formal financial plan is key to his long-term financial health. At 40 years old, he is aware that he needs that extra $1M at 65. He met with a Financial Planner and they both designed a plan.
Ross’s plan:
Invest $1,186 every month until he turns 65 (that’s 25 years of consistent investing, earning the hypothetical 7.5% return).
That’s a total of $355,700 of Ross’s money.
$644,300 is from the investment growth that gets him to the $1M.
Waiting 10 years cost Joey $199,764 more out of his pocket.
$555,464 vs $355,700 Yikes!
He still got to the $1M, but he spent a lot more. I can think of many other ways to utilize that $200K, rather than paying the price of waiting.
Compounding Interest is one of my favorite topics in finance. It is all based on math. But many don’t truly understand the impact of waiting.
The same compounding force that helps investments grow… also works against you when it comes to debt. The longer you wait to address it, the more interest builds, and the harder it gets to dig yourself out.
Your Call To Action:👇
I always say that while not everyone needs a Financial Advisor by their side to guide them through the ongoing financial planning process, everyone needs to do formal financial planning.
But if you don’t have the time or desire due to your busy schedule, you may benefit from a relationship with a Financial Advisor.
And notice I said “formal” financial planning. Everyone does financial planning. Not doing any formal financial planning is still financial planning. Just like “not making a decision is still a decision.” So don’t forget to plan; otherwise, you are planning to fail.
Formal Financial Planning will capture these 7 critical components:
Identifying your specific financial goals and values.
Understanding and structuring your cash flow to support your goals and values.
Establishing appropriate risk management in place for peace of mind.
Investing strategy to help you meet your goals.
Tax planning so you don’t leave a tip to Uncle Sam.
Legacy and estate planning support for your loved ones.
If you're interested in formal financial planning and aren't sure where to start, feel free to reach out. The first two meetings are complimentary:
Meeting 1: A 15 to 30 minute conversation to get to know each other and see if we’re a good fit.
Meeting 2: A deeper dive into your numbers and goals. I’ll gather your financial info, input it into planning software, analyze it and help assess whether you're headed in the right direction.
You can schedule a meeting here: First Impression meeting
