fork in a pathway

Photo by Karolina Grabowska

Is financial planning worth it? Or is planning just a waste of time that often fails? Research shows the value of having a financial plan, but most plans (about 70%) end up failing. If you want to have financial success, it’s important to understand why planning typically fails and what you can do to change that.

Now the main reason most often cited is “lack of execution.” Yes, this is technically true. People have plans – either written out or in their heads – but don’t make an effort to follow through. OK, but why is plan execution so poor? Why don’t people follow through and take action? Here are three real reasons why most financial plans fail:

Confusing Symptoms with the Problem

Financial plans are usually created as a solution to a problem. Let’s be real, if everything was going great, you wouldn’t need a plan, right? You’re not feeling good about your money matters. So, you’re looking for a fix.

But the problem you’re feeling is just a symptom. Many DIY planning efforts and finance “gurus” on TV fail to address this. For example, if you have no savings and a lot of debt, “overspending” is identified as the problem and “a budget” is the solution. However, a budget alone won’t solve your lack of savings or debt issue. There are other factors like income, expenses, long-term commitments, and your relationship with money that better explain why your cash flow is whacked.

Properly Identifying All the Resources

You have more financial resources than you realize. Financial success depends on tapping into all of them. You have income, maybe a home, investments or a 401(k). Online calculators and planning software can help you identify these. But most planning processes miss the power in your Cash Flow or free time that could be diverted to increase earnings, build savings or reduce debt.

Ignoring the Emotional Component

The biggest reason why most financial plans fail is because they neglect the emotional aspect. Most plans try to solve problems using math, formulas, numbers, or charts. However, you’re a human being with feelings (fear, trust), values (what’s most important to you, which is unique to you) and emotions (driven by lots of chemicals running through your brain).
Those human drivers don’t care about the math, formulas or pretty charts in your plan. In the end, what’s going on in your head will completely override your best intentions from a few days (weeks, months or years) ago when you crafted your “plan.”

The Path to Planning Success

Financial Planning does work. Most people who have a written plan feel more confident and in control than those who don’t. To achieve planning success, it’s crucial to address the root problem rather than just the symptoms. Identify and utilize all available resources effectively, and create a plan that takes into account your human emotions. If you’re working with a professional, make sure they have a process that addresses these three shortcomings; otherwise, you’ll be wasting your time, money, and energy.

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