Risk Management

What is Financial Plan Development and Why It Matters

What is Financial Plan Development and Why It Matters
February 12, 2024

Financial plan development is the process of creating a comprehensive roadmap to help individuals and families achieve their financial goals. It involves taking a holistic look at one's financial situation, identifying short and long-term goals, and outlining strategies to reach those objectives.A sound financial plan serves several important purposes:

Provides Clarity and Direction

Defining financial goals is the critical first step. This includes targets for saving, investing, paying down debt, funding college, retirement planning, and more. With clear goals set, it becomes much easier to make decisions aligned with achieving future milestones.

Assesses Current Circumstances

Before determining where you want to go, you need to understand where you currently stand. Financial plan development includes thorough analysis of income, expenses, assets, liabilities, insurance coverage, tax situation, and other facets of one's financial life. Gaining clarity here is essential for mapping out an accurate path forward.

Accounts for Changing Needs

Life circumstances evolve over time. Children, career moves, economic shifts, inheritance, health issues, and other factors can impact financial standing and priorities.
The financial planning process builds in regular check-ins and updates to keep the roadmap current.

Provides Accountability

Committing goals and strategies to a written plan, and reviewing with a financial planner, creates accountability for following through. This helps avoid detours created by emotional decisions or life's daily distractions.

Prepares for the Unexpected

While hoping for the best, financial plans also prepare for the worst. This includes assessing insurance needs, building emergency savings, and contingency planning for potential job loss, disability, long-term care needs and other unwelcome surprises life may bring.

Optimizes Financial Decision Making

With financial clarity, goals, and contingency plans in place, individuals are better positioned to make optimal decisions on spending, saving, and investing to support their objectives.
The financial planning process culminates in a comprehensive plan addressing all aspects of one's finances. This living document will evolve over time as progress is tracked and adjustments made. Working with a certified financial planner can bring expertise and accountability to developing a sound financial plan.

Key Components of a Financial Plan

While individual financial plans will vary, most focus on several core areas:

Financial Goals:

Short, medium and long-term money targets set around saving, debt, investments, retirement planning, college funding, and other major objectives.


Tracking income and expenses, identifying spending leaks, and optimizing monthly cash flow.

Emergency Savings:

Setting aside 3-6 months of living expenses for unexpected crises. This self-insurance helps avoid debt or tapping long-term savings.

Insurance Planning:

Conducting analysis to determine if current insurance policies for health, life, disability and long-term care provide adequate protection.

Tax Strategy:

Assessing current tax situation and opportunities to minimize liability now and in retirement. This also includes estate planning to pass assets efficiently to heirs.


Determining investment time horizons, risk tolerance and strategies to optimize returns for multiple financial goals.

Retirement Planning:

Projecting retirement expenses and income sources, calculating savings rates to close gaps, and developing an income distribution strategy for funding living expenses.

Estate Planning:

Documenting wishes for asset distribution upon death, designating beneficiaries, and selecting executors/trustees to enact one's wishes.

The end result is confidence that personal or family financial goals can be achieved. Following the roadmap also brings peace of mind knowing preparations have been made for life's unexpected detours.

Why Sound Financial Planning Matters

Financial plan development provides a clear roadmap for navigating life's financial journey. Despite best efforts, detours and unexpected obstacles will arise. Without a guide focused on the destination, it becomes much easier to get irrevocably lost.

Here are a few key benefits of committing to the financial planning process:

  • Achieve Major Milestones: With a plan in place, major milestones like retirement or college funding become more attainable rather than just hopes and dreams.
  • Build Wealth Over Time: Identifying savings and investing strategies aligned with financial goals drives wealth accumulation over years and decades.
  • Make Informed Decisions: Understanding the big picture impact makes it easier to make constructive daily decisions on spending and budget tradeoffs.
  • Protect Loved Ones: Ensuring adequate insurance, estate planning, and advanced directives helps avoid unnecessary stress for surviving relatives.
  • Enjoy Greater Confidence: The reassurance your financial roadmap provides allows focusing energy on enjoying day-to-day living rather than worrying about an uncertain future.
  • Gain Peace of Mind: Even with detours and unexpected challenges, you’ll take comfort knowing you have prepared for financial security in retirement and protected loved ones.

Final Thoughts

Financial plan development requires assessing your current financial landscape, defining future goals, and crafting an ongoing strategy to align the two. It provides clarity and accountability needed to have the best chance of achieving your objectives.

This reduces stress, leads to better decisions, and paves the way for long-term financial security. Making the commitment will pay dividends for years to come.