People frequently misunderstand the purpose and benefits of financial planning. They think it's only about beating the S&P 500 Index or planning for retirement, or it's only for wealthy or older people.

Financial planning is none of these. It is about helping individuals and families, regardless of age and financial circumstances, envision and realize their dreams and goals by marshaling and managing their financial resources.

Think of financial planning as taking a road trip by car. You prepare for the trip by marking on the road map where you are today and the destinations you want to reach. These destinations represent any life dreams and goals that involve finances. They might include buying a home, starting a family, building an emergency fund, reducing personal debt, funding your children's college education or a wedding, starting your own business, taking care of elderly parents, carving out more leisure time for yourself, changing careers, taking an exotic vacation or retiring comfortably.

The specific destinations are up to you. But without marking them on the map, you won't know how to get there and you'll end up missing many of them. And keep in mind that some of those destinations may change during the trip, or you may add new ones. Good financial planning, like good trip planning, is always flexible.

Before embarking on your road trip of life, however, you need to assemble and assess your available resources to take on the trip. In financial planning terms, that means gathering data, such as sources of income, anticipated trip expenses, current financial assets and liabilities, insurance, estate planning, and who is going on the trip (spouse, children, parents). In short, how are you going to pay for this trip?

With financial resources in hand, you can begin to map out the route. Financial planning will show you the best route to get to your destinations. You may find in planning that you can't reach every destination you wish. Time and financial resources are finite. You may have to drop or modify some of your dreams and goals, at least for the moment.

Also, financial planning will show you how soon you can reach your destinations based on the financial resources you have or anticipate having. For example, you may want to reach the Oregon coast to retire by age 60, but you may not currently have the financial means to accomplish it until age 65.

Financial planning can help you make the most of your dollars through smart tax planning, sound budgeting and wise spending. The extra funds allow you to reach your destinations sooner or perhaps add new destinations.
 
This is where investing finally comes into play. Your employment income might be sufficient to pay for food, gas and lodging along the way, but you'll also need to save in lower-risk assets to pay for those closer destinations (building an emergency fund or reducing debt) and invest in higher-risk assets to fund the more expensive destinations farther away (retirement in Oregon or college in Colorado).

Financial planning also provides resources for those inevitable financial delays and detours on your life trip. Resources include a cash emergency fund, the right amounts of disability and life insurance, and medical and long-term-care insurance. It also includes such resources as wills, power of attorney and perhaps trusts to ensure that your loved ones can continue the trip in the event you can't.

Should you do your own financial planning or seek professional financial advice? You should be involved in all aspects of your plan, but if you don't have the time and financial expertise, you may want a qualified financial planner to help you clarify your destinations, select the best route, build your financial assets and be sure emergency resources are in place. Find a financial planner.

Finally, financial planning is not a one-time event — a route mapped out and never changed. Along the way, some destinations or particular routes will prove unrealistic. Financial planning is a lifetime process, flexible and strong enough to accommodate the inevitable changes that occur along the road of life.

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