The Importance of Financial Planning

Financial Planning Week is celebrated October 6 – 12, and in addition to the current state of the economy, this is a good reason to talk about the importance of financial planning. Similar to other important holidays, this one too should cause us to pause and reflect. Taking time to think about our personal and financial goals and establishing a plan for achieving them can be the difference between fruitless worry and personal fulfillment.

Financial planning is the process of meeting your life goals through the proper management of your resources. These goals can be as short term as purchasing the correct amount of insurance to the long-term goal of saving for a comfortable retirement. The financial planning process consists of six steps that help you take a look at the "big picture" of where you are financially. The process involves 1) gathering relevant financial information, 2) determining your goals, 3) examining your current financial status, 4) developing a financial strategy or plan for reaching your goals, 5) implementing the plan, and 6) monitoring the success of the financial plan and adjusting it when necessary. Using these six steps, you can work out where you are now, what you desire in the future, and what you must do to get there.

Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each decision you make affects other areas of your finances. For example, does it make more sense to use available dollars to pay off your mortgage early or contribute additional sums to your retirement account? By viewing each decision as part of a whole, you can consider the short and long-term effects on your life goals. You can also more easily adapt when life changes do occur and feel more secure that you are on track to continue to reach your goals.

The volatility in today’s market has caused many of us to question our investment strategies. Asking questions is good; making rash or imprudent changes is not. If you choose to make changes, make sure you are making them for the right reasons. How you choose to invest your money should be consistent with your goals and time horizon. Putting a large percentage of your dollars into vehicles that offer safety and liquidity may be the right strategy if your investment goals are short term. But if you still have years to invest, keep in mind that stocks have historically outperformed stable value investments over time, although past performance is not a guarantee of future results. If you move all or most of your investment dollars into conservative investments, you’ve not only locked in any losses you might have, but you’ve also sacrificed your potential for higher returns. So what is the right move? Again, that depends on your risk tolerance and your short and long-term goals. A financial plan is a great mechanism for matching those goals with the right strategy.

Some individuals may be comfortable using finance software packages, magazines or self-help books to do their own financial planning. If you do not have the self-discipline or expertise to accomplish this task on your own, you may wish to use a professional advisor. Additionally, professional advisors may be necessary for individuals with complex financial needs.

So take advantage of this Financial Planning Week celebration to do something that has a much bigger impact on your (and your family’s) financial future than selecting the right size turkey for your Thanksgiving feast. Begin a financial plan for you and your loved ones. The thanks you receive will last a lifetime.

Marcia Peterson is a Private Banker for the Door County region of Baylake Bank. Baylake Bank, Member FDIC/Equal Housing Lender, employs over 320 individuals throughout northeastern and central Wisconsin and serves its communities from 28 financial centers in Brown, Door, Green Lake, Kewaunee, Manitowoc, Outagamie, Waupaca, and Waushara counties and from its Web site at http://www.baylake.com. For more information call 920.743.5551 or 800.267.3610.