Insights

What Are the Benefits of Financial Planning?

December 21, 2023 By

Helen Zhou

3 people sitting at a dining table with papers on the table discussing financial planning

Your finances tell a story.

It’s a story that unfolds with every decision, every saved dollar, and every planned investment. Financial challenges require strategic planning and thoughtful decision making. Navigating these challenges without a plan can be overwhelming, because one uninformed decision could have a lifelong impact.

A recent survey found that 74% of Americans live paycheck to paycheck, 54% have decreased their savings in the past 12 months, and approximately 67% of workers could not afford to cover a $400 emergency expense. These statistics are alarming, but don’t let this bad news prevent you from taking action. Take the time now to create a well-thought-out financial plan, and make the intentional and informed decisions today that over time will help you secure a stable future.

young financial planner helping couple with their money management skills

Financial planning helps ensure your money is working for you and is aligned with your short- and long-term financial goals. A 2022 survey found that 91% of people who have a financial plan find it useful, and 33% say their plan has been “critical” for setting them on a positive path to retirement. Following a financial plan can help you save for a comfortable retirement, stay ahead of inflation, successfully manage debt, and more. Here’s a closer look at a few of the key benefits of financial planning.

1. Securing your retirement

The purpose of retirement planning is to create a financial cushion that allows you to comfortably enjoy your post-work years. For most people, this requires a strategic plan that includes setting aside funds and making smart investment decisions to help you build a nest egg that will support your retirement lifestyle.

The earlier you begin investing, the more time your money can grow. Thanks to the power of compound interest, even modest savings can accumulate substantially over several decades. Starting your retirement planning early offers you the opportunity to invest a bit more aggressively, since you will have more time to recover from any short- and long-term market fluctuations and other financial setbacks. Simply put, early investing increases your chances of achieving your retirement goals.

2. Achieving financial goals

Setting clear financial goals is a critical part of managing your finances. When you create a financial plan you’ll define:

Short-term goals, such as building an emergency fund
Intermediate-term goals, such as buying a home
Long-term goals, such as planning for retirement

Once you set your goals, your financial plan will put you on a path to achieve them and help you coordinate your spending, savings, and investment efforts. This type of goal-based financial planning is an ongoing process. To ensure you meet your goals, you will need to regularly evaluate your progress and make adjustments as your circumstances change.

3. Staying ahead of inflation

Inflation refers to the increase in the costs of goods and services over time. For example, a gallon of milk that cost $0.83 in 1950 costs about $4.33 today. As prices rise your dollars don’t stretch as far.

Inflation is a critical factor when saving for the future because inflation subtly but consistently decreases your purchasing power, eroding the real value of your savings and investments. However, strategic financial planning can shield you against inflation’s impact by helping you invest funds in ways that are likely to outpace it. A forward-thinking investment strategy can enhance your purchasing power by ensuring your money is working efficiently.

4. Creating financial security

Financial planning can protect your money and income and provide you with long-term financial security. A solid financial plan should include both a safety net to help cover unexpected life events and investment strategies that align with your short- and long-term needs. This includes investing based on your time horizon and risk tolerance.

Life is full of expected and unexpected changes – getting married or divorced, having children, changing careers, dealing with unexpected medical conditions – each of which can impact your finances, goals, and needs. A solid, strategic, customized financial plan will better equip you to handle these changes without jeopardizing your financial stability.

5. Effective debt management

Financial well-being requires handling debt wisely, yet many people struggle with debt. Recent data show that the average American carries $21,800 in personal debt, and 35% of Americans say they are currently carrying the highest level of debt in their lives. On average, individuals with personal debt spend about 30% of their income making debt payments.

Although some debt, such as a mortgage, may be necessary for achieving specific goals, having too much debt can slow down your financial growth, especially when interest rates are high. A solid financial plan should incorporate strategies to pay down debt and reduce interest payments. Following a debt-reduction plan can help minimize financial stress and free up more of your income for savings and investments.

6. Maximizing tax savings

Tax efficiency is a critical part of financial planning. By avoiding paying unnecessary taxes, you can keep more of your money to save, invest, and cover living expenses.

Strategic financial planning can help you maximize your tax savings by empowering you to take advantage of tax credits, deductions, and tax-advantaged savings accounts like IRAs and 401(k)s. When you follow a financial plan, you will be more aware of potential tax implications, which can help you make smarter decisions. Other strategic actions, such as planning when to buy and sell assets, can also potentially reduce your taxable income.

7. Asset protection

An effective financial plan does not focus solely on building assets; it also incorporates strategies to protect them. Unanticipated events can put your finances in peril – from legal liabilities and accidents to sudden health issues or catastrophic events.

A comprehensive financial plan includes an insurance strategy designed to make sure you’re prepared for life’s unexpected events. These include life, health, property and liability insurance coverage, all tailored to meet your specific needs. A successful financial plan will help you balance the cost of coverage with the protection you need to provide additional financial security and peace of mind.

8. Improved financial literacy

When you learn more about how to manage money and plan for the future, you’ll be better equipped to make smarter decisions about saving, investing, and spending. Financial planning helps you make sound financial decisions and avoid common pitfalls. You’ll also become well versed in such key factors as savings and investment options, how the market works, and rules regarding taxes, retirement savings, and more.

Planning and managing money does more than help guide your financial actions. It informs you why certain decisions may be better than others. Studies show that 52% of households that have a written financial plan save 10% or more of their income, compared with 36% of those that do not. The more you learn, plan, and implement, the better equipped you will be to improve your financial situation and more confidently handle money matters.

9. Leaving a legacy

Your financial plan can also help you address what happens to your assets after you pass away. Comprehensive financial plans include an estate plan, which ensures your assets are distributed according to your wishes. This can help you both provide for your loved ones and minimize potential tax burdens.

You may also integrate philanthropic giving into your financial plan to support charitable causes or community projects that reflect your values. Your plan can include gifts made during your lifetime, after you’ve passed away, or both to ensure you leave a legacy that benefits future generations.

Taking the first step in financial planning

A financial plan begins with evaluating your current financial situation. This includes understanding your current income, expenses, assets, and liabilities. Next, you need to set clear short- and long-term financial goals and develop a plan for achieving them individually – the quintessential element of goals-based planning. Goals-based planning allows you to proactively finetune your budget and prioritize savings to achieve your goals.

While some individuals begin their financial planning journey on their own, an experienced financial professional can be a valuable partner who can provide the knowledge, advice, and market insight you need to secure your financial future.

Financial planning isn’t something you engage in once. It’s an ongoing journey. As you move through life your goals and circumstances might change, and you should update your financial plan accordingly.

East West Bank can help you create, monitor, and adjust customized financial plans. Our investment professionals help you maximize your current finances, identify your financial goals, and help put you on a path to securing a financial future that lets you live your best life. Learn more about East West Bank’s planning and wealth management services today.

East West Wealth Management is a marketing name of Cetera Investment Services.

Securities and insurance products are offered through and advisors are registered with Cetera Investment Services LLC (doing insurance business in CA as CFG STC Insurance Agency LLC), member FINRA/SIPC.

Advisory services offered through Cetera Investment Advisers LLC. Both firms are under separate ownership from East West Bank and its affiliates. East West Bank will not provide or be responsible for any tax or advisory services and/or legal information services given at the seminar.

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