By Antonio Porretta
“If only I would have known†is a comment heard throughout the financial industry all too often. While taking the first steps to create a financial plan is daunting, it’s always worth it (for your future self’s sake). In a nutshell, that’s why the process of planning is more important than the plan.
Financial planning is often an eye-opening process. It forces you to face your budget, gain a real understanding of compound interest, and provides you the ability to answer the question of “Are you prepared for retirement?†without a shoulder shrug.
Have you ever had that “why didn’t someone teach me this†feeling? It’s a common thought during the planning process, but that’s exactly why partnering with the right financial planner leaves people feeling empowered about their personalized plan and the future.
The Eye-Opening Process of Creating a Plan
The first steps in creating a financial plan involve gathering data to paint a clear financial picture of where you stand today along with an estimated view of where you’re headed. The goal for most is a comfortable and secure retirement.
Depending on your age and goals, you’ll touch on many topics. Creating a personalized plan is more than just covering the day-to-day expenses of retirement. When doing it alone, it’s easy to overlook important aspects. Here are a few important points; have you considered them all?
- When it comes to your children or grandchildren, will you contribute to college expenses or weddings? Students today pay an average of $35,720 per year at a public 4-year college. (1)
- How much will you get from Social Security? The current 2021 average monthly benefit is $1,543. (2)
- Have you considered long-term care? Did you know nearly 70% of the population requires long-term care at some point? The average need for men is 2.2 years, and for women it’s 3.7 years. (3)
- Will you leave an inheritance? It’s a wonderful way to support future generations, but it likely won’t happen if you don’t plan for it.Â
While creating a plan, your eyes are quickly opened to all you need to plan for. And thanks to financial tools and calculators, you’ll receive a pretty accurate trajectory of whether you’re on track or need to play catch-up. This valuable information would have never come to light without the planning process.
Budgeting
Whether you’re mapping out your monthly retirement needs or determining how much you can devote to savings each month, financial planning inevitably comes with budgeting.
Creating a personal budget can showcase wasteful spending. Along the way, you can determine just how much you can devote to building up your savings account and retirement fund. And if you’re creating a retirement budget, you’ll learn if there’s a gap between your needs and what your savings and Social Security can cover.
Without a budget, you simply don’t know if you need to make a change—the knowledge that comes from the planning process can have long-term positive effects on your financial journey.
The Firsthand Lesson on Compound Interest
A real-life lesson on compound interest sparks one of two reactions: “Oh, no†or “Oh, yes.†Compound interest is the interest gained on your initial investment AND the interest gained on past interest gains. It’s interest on interest, and it’s an opportunity you don’t want to miss out on.
Here’s a simple example. If you have $10,000 and earn 10%, your first interest payment is $1,000. With your new balance of $11,000, your second interest payment is $1,100, leaving you with a new balance of $12,100. Your third interest payment is $1,210. With no effort, your interest payments are quickly increasing.
The “Oh, no†crowd realizes the potential they’ve missed. Time is the ultimate component when calculating compound interest. It’s why a young investor can ultimately stash away less for retirement and come out with more compared to someone who started 10 or 20 years later.
Those saying “Oh, yes†can’t wait to put away an extra $10 here and there as soon as possible. This is an important lesson for investors with time on their side. A marginal increase in your savings efforts can have a big payoff down the road with seemingly little effort. It’s all about working smarter, not harder.
Gaining a Sense of Confidence
The ultimate gift that comes with creating a plan is empowerment. A financial advisor is a guide. As your guide, they will help provide education, unveil what you need to prepare for, help paint a clear financial picture, and show you options to help work towards your goals.
But at the end of the day, it’s you who has to pull the trigger and act on the plan to see results. And that’s why the planning process is ultimately more important than the plan. At Blackbridge Financial, we believe knowledge is the key to feeling empowered to make financial decisions with confidence.
Ready to take in the knowledge required to draw out a plan for your future? Reach out at 704.960.9646 or email me at [email protected].
About Antonio
Antonio Porretta is an independent wealth manager at Blackbridge Financial with over 20 years of experience. He specializes in helping people create, distribute, and preserve their wealth. Antonio received an executive MBA from Saunders College of Business at Rochester Institute of Technology in 2007 and also holds the Accredited Asset Management Specialist (AAMS®) designation. Originally from Rochester, NY, Antonio has been a resident of Harrisburg, NC, since 2007. Outside of work, he enjoys playing soccer and tennis, coaching, and spending time with his wife, Laura, and their children, Cristiano, Victoria, and Matteo. To learn more about Antonio and how he can make a difference in your financial life, visit www.blackbridgefinancial.com.
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Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance, a registered investment advisor. Independent Advisor Alliance and Blackbridge Financial are separate entities from LPL Financial.
The examples presented are hypothetical and are not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
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(1) https://educationdata.org/average-cost-of-college
(3) https://acl.gov/ltc/basic-needs/how-much-care-will-you-need