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The Case for Planning

Schwab is out with the 2018 installment of its Modern Wealth Index, an online survey that this year scored approximately a thousand participants on a scale between 1 and 100 based on how well they say they manage their money and investments. Respondents provide answers anonymously and directly, so the results tend to be a true read of people’s behaviors.

Cause or Effect?
As with other surveys we’ve seen, having a financial plan correlates positively with an individual’s financial well-being: those taking the survey who say they have a plan in place score 68, compared to 50 overall and 44 for those without a plan. Related findings:

•   Three-quarters of those with a plan, say they pay their bills on time versus only a third for those who do not plan.
•   Almost two-thirds of the financially planned group have an emergency fund versus less than one-quarter of the unplanned.
•   Almost twice as many (62% vs. 32%) say they feel financially secure.

Of course, correlation doesn’t always mean causation. Forty-five percent of those who report not having a financial plan say they don’t have enough money to merit a formal plan, which, presumably, may be the same reason they may not pay their bills on time or have an emergency fund. Still, the overall findings jibe with other research we’ve seen that coming up with a plan and committing to it can advance positive financial behaviors and foster peace of mind.

The need for planning shows no sign of abating, particularly with the potential for market volatility ahead. Its demand is acyclical, and it requires the skills that wealth advisors and financial planners are best qualified to deliver.