Would you build a house without a blueprint? Would you trust a pilot or a doctor that is going to fly blind without a plan? No. But in today's world, anyone with a heartbeat and a few dollars in their pocket can open an online brokerage account and start trading stocks. In fact, all throughout history, it has never been easier, or cheaper, for people, anywhere in the world, to trade stocks. So, most people dive in without taking the time to study the market or create a well thought out financial plan. The result is most people really do not understand what they are doing and unfortunately end up losing money.
Why Create A Financial Plan?
The primary reason why people should create a financial plan is to help them achieve their financial goals. Remember, successful people do not become successful by accident. They work hard, study the market, and develop a sound game plan that helps them accomplish their goal(s). Once you take the time to create a financial plan you will instantly be ahead of most other investors (because they don't take the time to plan).
Make Intelligent Decisions:
Investors who take the time to create a financial plan tend to make more informed investment decisions because their decisions are aligned with their objectives. This way they don't just "wing it" and get hurt when the market falls. I spoke to Jim Bell, CFP® President & Founder, Bell Investment Advisors with $500 million under management he told me, "Without a plan, investors and their advisors don’t know what they are doing. They don’t know what their savings rate and average investment return need to be to live a good life to the very end. They don’t know how to determine their optimal investment strategy or whether they should buy long-term care insurance, and they don’t know the consequences of other financial decisions. They don’t know when they can retire or change their work schedule or change their income."