Having a plan for our financial future is like having a destination for a family vacation.
Imagine you’re going on a vacation.
You’ve got the car packed, your spouse in the front seat, dog and kids in the back seat all buckled in and ready to go. So exciting! You drive onto the street. Then you stop. Wait, where are you going? You forgot to plan the destination!
While this seems like a silly example, there is an analogy here to financial planning. Imagine financial independence or retirement as your destination. You’re preparing (packing the car): you bought a home and are paying the mortgage; you are saving in your company’s retirement savings plan; you’ve set aside something for the kids’ college costs. But every time you think about it, you wonder – am I saving enough in my 401k? Is my money working for me in the form of compound interest and growth over time? I heard college is going to be really expensive when my kids graduate from high school, but how much should I actually expect to spend? Essentially, you’ve packed the car, but you don’t have a destination.
A financial plan can help you define your destination.
What does retirement look like for you and your spouse? Some people prefer to call this stage “financial independence” instead of retirement, because it’s the point at which you are financially independent and no longer need to rely on a 9-5 job to cover the cost of your lifestyle. But have you taken the time to think about what your financial independence might look like? What are your priorities in financial independence – travel, living near family, spending time on specific interests? How does your financial independence compare to paying for your kids’ college? What if the future looks different than you planned and are you prepared if one spouse were to pass away or get ill? These are all issues that are typically considered when you build a financial plan.