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What's a Financial Plan? Do You Need One?

Key Points
  • A financial plan provides a roadmap for your financial life.

  • A comprehensive plan makes sure all parts of your financial life are working together.

  • A financial plan is a great investment, provided you do your part.

Dear Carrie,

I’m in my early 40s with two young children. My wife and I want to be diligent about our finances, but sometimes it feels overwhelming! Between saving for retirement and our children’s college, trying to understand what we can afford for other goals (like a bigger house), and feeling confident about all of the financial decisions that crop up, it’s complicated. How can we get a handle on it all?

—A Reader

Dear Reader,

You are absolutely correct; as life gets more complex, so do our finances. With children, retirement, large purchases, vacations—what have you—you can feel pulled in far too many directions. What once seemed like a clear path becomes a more complicated journey with lots of twists and turns. So to keep moving forward, I suggest you get a map—in the form of a comprehensive financial plan.

Why a financial plan makes sense

First, a financial plan is about developing a realistic and informed perspective on how you can put all of your financial resources to their best use. The process starts by examining and articulating your goals (some that you've already thought about, and some that may not be obvious), and then sorting out your priorities. This can be an excellent opportunity for you and your wife to step back, rethink and agree on what's most important to you.

Second, a successful financial plan is holistic. It looks at all the interrelated parts of your financial life—income, expenses, investments, retirement planning, the role of insurance in risk management, income tax liability, estate planning needs and desires—to make sure they're all coordinated. This is essential because if you don't have a handle on how much money is coming in and going out every month, it’s next to impossible to know how much you can save. If you don't have a savings plan, you won’t be able to manage your most important goals like buying that bigger home, paying for your children’s education, or funding a comfortable retirement. And if you don't have adequate insurance, you may not be able to protect these savings in the face of some unexpected event like an illness or job loss.

Finally, a good financial plan will include a series of concrete recommendations. Otherwise, your experience remains an academic exercise: interesting, perhaps, but not that useful. The goal of a financial plan, after all, is to make your goals a reality.

What a financial plan includes

At Schwab a financial plan may include all or some of the following parts:

  • A personal net worth statement—a snapshot of what you own and what you owe. This will help you know exactly where you stand, and also give you a benchmark against which you can measure your progress.
  • A look at your cash flow—so you can see exactly how much money comes in and goes out every year, and understand if it is sustainable in the long term. This is the foundation for your budget (including identifying what’s fixed and what’s discretionary) and if necessary, a debt management plan.
  • A retirement plan—specifying how much you need to save each year to achieve the lifestyle you and your wife hope to maintain. This includes a recommendation on how best to maximize your eventual Social Security benefit (individually and as a couple), and can also incorporate any other pension funds that you will receive.
  • An analysis of how your current investment portfolio aligns with your long-term goals. Your team can recommend appropriate adjustments based on your goals, resources, risk profile, and time frame.
  • A plan for education funding based on your resources, timing and aspirations.
  • A review of your employee benefits, including equity compensation planning.
  • A review of your insurance coverage—the key here is to make sure you have the right types and amounts to cover your most significant risks and that you aren’t paying for unnecessary coverage.
  • Planning for special needs—for a child, parent, or other dependent.
  • Recommendations for creating or updating your estate plan, including charitable giving and legacy planning. The conversations you have with your financial planner can be the foundation for your ultimate work with an estate planning attorney.

What you can expect

A comprehensive financial plan generally follows a six-step process, designed to keep all the pieces on track as you progress from your initial consultation to eventual implementation and follow-up. This process includes:

  1. Agreeing how you'll work together, with a clear explanation of roles and responsibilities. At this point it’s important to ask lots of questions so that you’ll understand exactly what you can expect in terms of deliverables, cost, and time frame. At Schwab you will likely consult with both your financial consultant and a member of the financial planning team as you establish your relationship.
  2. Information gathering and goal setting. Once you’ve set the ground rules, your financial planner will start the process of obtaining a full understanding of your resources, obligations, and expectations. At the same time, your planner will delve into your goals, time horizon and risk tolerance. This is your chance to make your wishes clear so that your plan will truly reflect your values and priorities.
  3. Evaluation of your financial status and creation of a strategy. Once you’ve provided your input, your planner will craft a preliminary plan, based on all of the information listed in step 2.
  4. Next, your planner will present you with recommendations, including possible alternatives. Nothing is cast in stone at this point; your goal is to understand your options and make choices.
  5. Now the rubber hits the road. You and your team have spent a considerable amount of time gathering data, examining priorities, looking at what’s realistic and making choices, and now it’s time to put your plan in motion. Your Schwab financial consultant will be fully involved in this implementation phase, helping you to select the best products and accounts to meet your goals (for example, you will be able to examine the benefits of a Roth vs. traditional IRA, a custodial account vs. a 529 account for college savings, or even term vs. whole life insurance). At this point you might begin to work with other professionals including an accountant, attorney, or insurance agent.
  6. Last but not least, it is essential that you and your planning team continue to monitor your progress and make adjustments as your goals, priorities, and time frame evolve.

Many people think a financial plan is only for the wealthy. But I would strongly disagree with that assessment because to me, a financial plan can be invaluable to anyone who wants to make the most thoughtful decisions about their money—even as their goals and priorities evolve. In fact, in today’s extraordinarily complicated world, it can be the one guide you need most.

Have a personal finance question? Email us at Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

Next Steps

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Important Disclosures

Rebalancing and asset allocation cannot ensure a profit, do not protect against losses, or guarantee that an investor's goal will be met.  



The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. 

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