The Most Important Element of Successful Financial Planning

Based in Denver, Colorado, the Financial Planning Association recently conducted a survey of investor values and opinions. It should not come as much of a surprise that the survey would support the Financial Planning industry and its leagues of planners.

As it turns out, people who work with paid, professional financial planners not only feel more confident about their future in terms of financial goals, economic and market recoveries and so on, but they feel better about their current financial situation. As opposed to self-directed individuals, those with comprehensive financial plans are portrayed as generally more laid back and comfortable with their current and future situations.

What the Financial Planning Association (FPA) reveals, however, is that individuals who have a comprehensive financial plan possess one vital element that all other survey participants lacked: a plan.

More specifically, the FPA outlined that having a "written" plan allows the most-confident participants to know several things about their financial future. These items include:

Whether they were on track to achieve their financial goals - other participants did not know whether they were behind or ahead of plan, or right on track.

Whether their goals were attainable or unrealistic - other participants did not know how much they needed to save or how much they could draw during their retirement years.

Whether they were confident that they would reach their financial goals - other participants were unsure.

The point that the FPA wanted to establish seems to be that do-it-yourself planners lack two key things:

1. The ability to write down what their financial planning goals are (investments, insurance, debt management, budgeting, taxation, estate planning). Many of these financial aspects can be summarized primarily as income-based such as budgeting and savings-based such as debt management and investments. As a by-product of proper planning, the secondary functions of taxation, insurance and estate planning come into play in order to keep more of your income-based and savings-based money. So, if you are a do-it-yourselfer, write down you goals. If it's a financial number, write that down. If it's to own a boat in retirement, start by writing that down. With a goal, you can flesh out your plans later when you start investigating the true costs and what you need to do to get there. Planners do this for two reasons: 1) they can't remember what each of their clients' goals are and, more importantly; 2) putting a goal in writing has a powerful effect.

2. The tools to calculate their goals in dollars terms and lack the planning tools to determine whether they are on track. While making complicated future-value of money calculations are normally beyond the average person's level of knowledge, there are literally thousands of resources available to the do-it-yourselfer. This poses more of a problem when it comes to financial planning than the previous area (anyone can write down their goals, but not everyone knows how to operate a financial calculator).

These suggestions are completely inaccurate. The average do-it-yourselfer simply lacks the knowledge of where to obtain this information and these powerful tools. Savings for the sake of savings doesn't make much sense, but everyone should have a true goal. People who are more comfortable managing their own personal finances need to understand where the FPA sees the greatest short-comings with doing so -- they suggest regular people just aren't as "intelligent" as their financial planners are. This is complete rubbish! Their research does not suggest that individuals sign up with a financial planner, it suggests that people become better planners. They not only need to know how financial planners work, but where to find and how to use their tools.