Don’t Wait: 5 Reasons to Create a Formal Financial Plan in Your 20s
It’s never too early to create a formal financial plan.
Not yet out of your 20s? Not a problem. Indeed, the earlier you set out on your financial planning journey, the stronger it’s likely to end up.
As San Francisco-based wealth manager Daniella Rand notes in a blog post on the importance of planning early, “fortune favors the prepared.” Planners, of course, like to be prepared.
Need more convincing that it’s in your best interest to work with a financial planning professional on a comprehensive financial plan before your 30th birthday? Consider these five arguments for doing just that.
Compound Interest Is Your Friend
To be fair, “planning” and “investing” are not synonymous. You can do the latter without the former. But planning is nevertheless an important prerequisite to a sound long-term investing strategy. And the longer your money stays in the market, the greater its likely growth, thanks to the miracle of compound interest.
You May Not Know Enough to Know What You Don’t Know
You know you need a financial plan, because you’re smart enough to know that you’re not an expert in taxes, insurance, and other aspects of personal finance. But are you smart enough to know exactly why you need a plan — to know what you don’t know, in other words? This, from the CFP Board, offers a bare taste of what you could be missing.
Life Happens Fast
“The longer you put off planning for college, the bigger a challenge it becomes. The smarter move is to start thinking about it all as soon as possible.”
That advice, from this Kiplinger’s article, is not earth-shattering. Unfortunately, many parents fail to heed it. Even fewer parents-to-be take it to heart.
Putting together a full-spectrum financial plan before you experience major life events like the birth of your first child is the best way to ensure you’re not blindsided by their financial implications.
Retirement Is More Expensive Than You Realize
Once you quit working for good, you can get by with 30% of your pre-retirement income. The kids will be out of the house, supporting themselves, and you’ll turn over a frugal leaf. Right?
Try again. To maintain the lifestyle you’ve grown accustomed to, you’ll need to replace at least 70% of your income in retirement. Probably more like 80% or 90%. That requires a longer time horizon than you’d imagine.
You Have More Room for Error When You’re Younger
A long time horizon isn’t just beneficial for compounding purposes. It’s also important for your plan’s overall resiliency. An early start means more room for error, more time to correct said errors, and more runway to make lasting adjustments to your financial plan.
What’s Your Plan?
The writing is on the wall: You need a financial plan, and soon.
The only question left to answer is: What are you going to do about it?
Your financial planning professional will help you construct the framework of your plan. If you enjoy working with them, perhaps they’ll help you implement your plan over the years, too.
But only you can get the process started. Your future financial planning partner isn’t sitting there, waiting for you to call. They don’t yet know you exist. It’s up to you to inform them otherwise.