The Rewards of Sound Financial Planning

The Rewards of Sound Financial Planning

By: Eric Johnson

At a young age, it is often hard to conceive what retirement or old age will look like. It’s not hard to understand why that topic is mystifying to many individuals. The future is inherently uncertain. Even with the best forecasts, it is hard to project what tomorrow will bring. Neuroscience can explain the dilemma our brains have with the concept of uncertainty. According to a ScienceDirect journal publication, researchers Achim Peters, Bruce S. McEwen, and Karl Friston (2017) confirmed an inkling many of us infer daily: our brains dislike uncertainty. Uncertainty requires more power from our brains, reducing our cognitive capabilities to the point of poor decision-making and an inability to learn effectively.

When you reflect on the future, you may ponder what “the good life” means to you. For some of us, it may mean the ability to have financial freedom to pursue our personal or professional goals. For others, it may mean owning a lovely home, becoming an entrepreneur, or living with minimal debt. Whatever your ideal scenario is, it is essential to remember that all our goals start with a robust financial plan. A solid financial plan will weather the various storms of life: economic cycles, political shifts, and technological advancements. Recent economic downturns in 2007-2008 and the COVID-19 pandemic highlight the growing importance of a durable financial plan.

Personal financial planning will help you define personal financial goals and strategies for reaching those goals. One day, our ability to work will diminish; having a financial plan that is flexible enough to withstand employment changes will provide you with peace of mind as you pivot from working to retirement. In addition to end-of-career flexibility, sound financial planning will increase your standard of living, develop healthy spending patterns, and provide you with an avenue for building wealth. You will need more than financial planning to guarantee your success in the future. However, it will help you analyze trade-offs in consuming income today and setting a portion aside for tomorrow. You never know when you will face an unexpected illness, job loss, or personal emergency that may necessitate the use of savings. A financial plan will prepare you for whatever life throws at you.

When developing a sound financial plan, remember the SMART acronym:

• Specific
• Measurable
• Attainable
• Realistic
• Timely

Assign yourself specific goals that make sense for your future. Make sure your goals are also measurable. For example, how much money do you wish to have in retirement? Also, ask yourself if your goals are attainable. While it is essential to set high goals, you may need to set achievable goals to overcome budget constraints. Setting unrealistic goals will hinder your success with financial planning. Always set realistic goals and readjust your goals as your income grows. Finally, select a target date for each plan. Determine what age you would like to retire by, when you would like to pay off large debts, and any other goals that may intrigue you. Personal financial planning comes down to you hence why it is personal financial planning.

The rewards of sound financial planning are many. Likewise, the pitfalls of poor financial planning are equally many. Analyzing the trade-offs of consumption today versus tomorrow’s savings is an important one we all must make. Whatever you decide to do, remember that sound financial planning will put you on a better path than someone who makes no plan.

Mr. Johnson is the Director of Financial Aid and an adjunct faculty member at Goldey-Beacom College.