Why you need a financial plan

Do you need a financial plan?

Why do you need a financial plan, and what difference does it really make? The primary role of a financial adviser isn't to recommend an investment portfolio. It's to produce a financial plan, to adjust that plan as circumstances change over the years, and above all to help you stick to it. Without one, you're navigating your financial life without a destination or a map.

In this video, Jason Butler, a former adviser who now writes and speaks about financial planning, sets out the three main risks of not having a plan. First, you may never reach where you want to go, because you've never actually articulated what success looks like. Second, you're far more likely to make sub-optimal decisions, choices that simply aren't as good as they could be. And third, perhaps most significantly, you may spend thirty or forty years carrying a great deal of anxiety, worry and stress, constantly beating yourself up that you should be doing better with your money.

You'll learn what a financial plan actually is and the purpose it serves. Butler describes it as a framework for working out where you are now, where you want to be in the future, and the series of decisions that will move you closer to your goals. Those decisions evolve across your life. In your earlier years they centre on career, earnings potential, where you live, relationships, family and perhaps building a business. As you get older, the focus shifts to living off your money and becoming financially independent when you can no longer, or no longer wish to, work. And in later life it's about securing the lifestyle you want, not being a burden on others, and being able to leave the legacies that matter to you.

The video also makes a crucial point: even more important than the plan itself is the ongoing planning process. It isn't the flight plan that counts so much as the course corrections along the way. Butler compares it to captaining a supertanker, which can't turn like a speedboat. If you can see an obstacle ten miles ahead, you have to begin adjusting your course well in advance, or risk running aground.

The takeaway: a financial plan gives you a clear destination, better decisions and far greater peace of mind. But its real power lies in the continual small adjustments over time, which is why the planning process, not just the document, is what ultimately keeps you on course toward the life you want.

Chapters / Key points

• Why an adviser's real job is planning, not just picking investments
• The three main risks of not having a financial plan
• Why you can't succeed without defining what success looks like
• How a lack of planning leads to sub-optimal decisions
• The hidden cost: years of unnecessary worry and stress
• What a financial plan actually is
• How your planning priorities change across your lifetime
• Why the ongoing planning process matters more than the plan itself
• The supertanker analogy: why early course corrections count

Transcript

Why you need a financial plan

RP: Hello there. The primary role of a financial adviser is not to recommend an investment portfolio. It's to produce a financial plan, to adjust that plan as required over the years, and most of all, to make sure that you stick to it.

Jason Butler is a former adviser who now writes and speaks about financial planning. He says there are three main risks involved in not having a plan.

JB: One, you may not actually get to where you want to go, because you haven't articulated, you won't know what success is because you haven't articulated it. Secondly, you are highly likely to make what we call sub-optimal decisions, which means bad decisions, decisions that aren't as good as they could be. And thirdly, and this is probably, I think, the biggest thing, is that you may be, for 30 or 40 years, carrying around a hell of a lot of anxiety, worry, stress, and beating yourself up mentally that you should be doing better with your money.

RP: So, what exactly is a financial plan? And what purpose does it serve?

JB: A financial plan is really developing a framework within which you can work out where you are now, where you want to be in the future, and making a decision, or a series of decisions, about what it is you should be doing to get nearer to that goal. Now, in the early part of your lifetime then it's going to be decisions about developing your career, your earnings potential, things like accommodation, where you're going to live, and relationships, and possibly family, building businesses. But as you get older, obviously it becomes more about living off your money and becoming financially independent when you can't or don't want to work. And then in latter years, it's about making sure you have the right kind of lifestyle in your latter years that you really want, and making sure that you're secure and not a burden on anyone, and that you can leave the legacies that you want.

RP: But even more important than the plan itself is the ongoing planning process. If you like, it's not the flight plan but the course corrections that really count.

JB: I liken it to a supertanker. If you are the captain of a supertanker, supertankers cannot turn like a speedboat. So, therefore, if you know there's going to be an island appearing right in front of you in 10 miles' time, you need to make some sort of course corrections well before that happens. Because otherwise you're going to run aground, and you've got this great big boat stuck in the middle of nowhere.

RP: Thanks to Jason Butler, and to you for watching. Goodbye.