By Dan Ahl, Associate Portfolio Manager
What is Financial Planning? This often-used term in the financial world is frequently misunderstood and undervalued. In our eyes, the reason Financial Planning is misconstrued is that Financial Planning is not the same for everyone. It also is not a simple projection of dollars compounding at an annual average interest rate until retirement – a little time with a calculator can yield that information.
Financial planning is really a chance to learn, engage, and take control of your own story. We hear all too often from young professionals who say “What is the point? I will never be able to save enough.” We are quick to point out to those young investors, if they were to invest $200 a month from age 25 through age 65 ($96,000 over time) and average a 7% rate of return they could obtain a healthy balance of $512,000. If our younger selves were aware of those figures, we would have taken a more active role in the investment process at an earlier age.
So how are our kids and/or grandkids approaching financial planning? Recent industry research of Generation Z (individuals born between 1997-2012) shows that Gen Z has grasped the importance of beginning the savings process sooner as they have started to save at an average age of 19, compared to Boomers average age of 35. This is great news, however, savings without a plan can lead to unforeseen troubles. As an example, while Gen Z is investing into retirement accounts, such as 401(k) plans, they are overlooking the basics of creating a solid financial future such as establishing savings accounts for emergencies. As a result, 27% have taken a loan from their 401(k) plan while 34% have taken a hardship withdrawal. A counterproductive decision that can have lasting consequences on their financial future.
As I stated above Financial Planning is about more than compounding numbers. While its best to start as early as possible it is also critical to do so wisely and consider all the angles. While this is just one example, there are many more ways we see planning impact our clients’ lives. We are here to help. We have the necessary tools and expertise to put together a well-rounded financial plan. Let us know how we can help you (and your kids) today!