In the ever-changing landscape of personal finance, the importance of having a written financial plan cannot be overstated. A recent survey of 5,794 households by Hearts & Wallets sheds light on the tangible benefits Americans experience when they commit their financial goals to paper.
Increased Savings Across Income Levels
One of the survey’s key findings is that Americans with a written financial plan tend to save more. The data indicates that 52% of households with written plans save 10% or more of their income compared to 36% of households who save that amount without written plans. Among those who think about their financial goals but do not have a formal written plan, the most common behavior is modest savings at 1% to 5% of income (29%), while 25% do not save at all.
The impact of a written plan is particularly pronounced for low- and moderate-income households. Among households earning less than $48,000 annually, one-third with a written plan save 10% or more of their income whereas only 10% of households in that income range save similarly when they don’t have a written plan. This highlights the potential for written financial plans to empower individuals in all income brackets to build a stronger financial future.
Better Asset Allocation and Portfolio Balance
In addition to increased savings, the survey reveals that those with a written financial plan demonstrate a better asset allocation and an increased portfolio balance. These individuals avoid the extremes in cash and equity allocations observed among households without a formal plan. A written plan appears to guide individuals towards a more balanced and strategic approach to managing their assets.
Enhanced Emotional Financial Wellness
Having a financial plan, especially a written one, is associated with improved emotional financial wellness. Individuals with plans report feeling more on track for retirement and express greater confidence in their financial decision-making. Written financial plans are also linked to the presence of more substantial emergency funds. This underscores the holistic impact that a comprehensive financial plan can have on an individual’s overall financial well-being.
A Wells Fargo study found that 43% of investors with a financial plan are highly confident they are on the path to a comfortable retirement whereas only 23% of those without a written plan felt such confidence.
The Long-Term Perspective
The survey aligns with previous research from Charles Schwab, emphasizing the role of a written financial plan in shaping better daily money behaviors. It dispels the misconception that financial planning is exclusive to high-income individuals, noting its relevance for all income levels.
The evidence is clear – having a written financial plan is a transformative tool that enhances savings, guides asset allocation, and boosts overall financial wellness. Whether you are just starting your career or navigating retirement, committing your financial goals to paper is a crucial step towards achieving long-term success. It’s a strategic investment in your financial future that pays dividends in the form of increased confidence, better decision-making, and a more secure financial foundation.