Driving across the country can be a challenging endeavor filled with long stretches on interstate highways. Road conditions and speed limits can change every time you cross a state line. Missing a turn or an exit can lead you in the wrong or opposite direction for miles. Thank goodness for a good old-fashioned roadmap. All of this is, of course, analogous to your financial well-being.
Long Stretches of Road
The drive from one coast to the other puts you on the road for long periods of time in the same way that your journey from young adulthood to retirement has you working and building savings over the long haul. One trip is measured in days. The other takes decades.
A cross-country journey also presents you with lots of options. You can take the northern route along Interstate 80 from San Francisco to Teaneck. You can use the southern passageway on highway 10 from L.A. to Jacksonville. Or you can reject these direct trips and meander nomadically, stopping at each of the strangest tourist attractions in America.
Your approach to the various financial goals in your life can be navigated using an equal number of avenues. There is no prescribed route for everyone. While many Americans share lots of common goals, the paths toward them likely aren’t the same.
Common financial goals like owning a home, paying for children’s educations, family vacations, and a secure retirement can be financed in lots of different ways using lots of different vehicles.
Road Conditions and Speed Limits Across State Lines
Driving on cruise control works just great on the open highway with no traffic and a clear understanding of the rules of the road. Crossing state lines can mix that up. The speed limit or road conditions can change.
Slowing down can cause delays and add uncertainty (even anxiety) about reaching your intended destination on time. Poor road conditions may even put a temporary halt in your progress. But it’s safer to proceed judiciously around potholes than it is to suddenly swerve in a panic to avoid them.
It’s the same with navigating your financial circumstances. Tax law changes can affect your take home pay or decrease your net investment income or gains. Changing market conditions can be unnerving. Overreactions to these can overturn previous progress. Let your long-term investment vehicles ride through bumpy markets.
Missing a Turn or an Exit
Your trek across the country will likely take you into unfamiliar territory. A wrong turn, missing an exit or getting twisted around in a spaghetti bowl interchange can leave you lost and confused.
Without a roadmap you could end up headed in the wrong direction. You could find yourself backtracking your previous progress, only to spend time and money to refuel or recharge just to make up lost ground.
This is so in your journey toward financial independence. Without a clearly-defined set of directions, the outcome could be worse than getting lost on the freeway. Poor planning could put your most important personal objectives in jeopardy.
Making unplanned moves with your investments can mean delaying retirement, postponing the purchase of your first home or not being able to send your children to their first-choice college or university.
Before Heading out on Your Journey
The roadmap analogy is fitting to describe the need for a formal and comprehensive financial plan. A financial plan sets the course to help you maintain a disciplined budget, help you save for emergencies and establish a routine for investing toward long-term goals.
A comprehensive financial plan outlines the steps necessary to achieve your most important objectives. It’s flexible enough to provide alternative tactics to deal with unexpected expenses or to take advantage of new opportunities.
In the absence of a plan, you’re driving blind.
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