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Every day, I get questions like, “What’s the best stock to buy right now?” or “Should I put my money in Bitcoin or real estate?” These are fair questions. After all, who doesn’t want to grow their money? But here’s the thing. People tend to focus on these questions way more than they should because focusing on investments alone misses the big picture. Investing, while important, is just one small part of the whole financial planning puzzle. Ignoring the bigger, broader aspects of financial planning and zeroing in on investments is like picking out the perfect tile color for your bathroom before you’ve even built the house.
Financial planning isn’t as flashy as talking about the latest market trend or stock pick, but it’s crucial to living a financially sound life. Without a solid plan, you’re setting yourself up to spin your wheels in every direction. So let’s talk about why people are so drawn to investing hype, why that’s a problem and what you can do to change the narrative and focus on what really matters.
It’s no secret that people love talking about investing. When you invest, there’s an air of excitement, a little thrill of risk and a hope of big returns. There’s an entire industry built on convincing you that your ticket to financial freedom lies in picking the next winning stock or catching the latest trend before it’s hot. Look at social media, financial news and even your neighbors or coworkers. Everyone is talking about “making their money work for them.”
But here’s the problem: Even if you manage to make an excellent return on your investments, a good investment doesn’t magically fix poor financial habits. Investment returns can be out of your control; one year, you might see double-digit gains, and the next, you could be staring at losses. People might make a few good investment decisions, but if they’re drowning in debt or haven’t even set up an emergency fund, those gains won’t go as far as they think.
Let’s be honest: Financial planning is a bit like eating your vegetables. It’s what you know you should do, but it doesn’t have the excitement factor. Creating a budget, paying down debt, setting up insurance and planning for taxes might feel boring. It’s work, and it forces people to confront hard truths about their spending, debt and financial security.
Financial planning isn’t just a one-time effort either; it’s ongoing, like maintaining your health. You can’t just set it and forget it. It needs regular check-ins and adjustments as life evolves. But since it’s often not thrilling or new, many people skip it. And when they do, they’re missing out on building a strong foundation for financial stability.
When you focus only on investments without addressing the core financial planning areas, you’re building a house of cards. It looks great from a distance, but with a small gust of wind—like an unexpected expense, a layoff or a dip in the market—it all falls apart.
Consider this: What if you hit it big with an investment but had no plan in place for taxes? You could lose a huge chunk of your gains to tax liabilities. Or say you’re making great returns in the stock market but have no emergency fund. An unexpected medical expense could force you to sell your investments at the worst possible time, erasing any gains you made.
Without a financial plan, your investments are floating in a vacuum. Financial planning is what gives your money purpose. When you have a plan, your investments fit into a larger picture, working towards specific goals like buying a home, saving for retirement or funding a child’s education.
Good financial planning doesn’t start with picking the hottest stock. It starts with organizing your life. Here’s a simple outline of what an effective financial plan looks like:
Set goals: Understand what you want to achieve with your money. Retirement, home ownership, travel, education—whatever it is, know your goals.
Create a budget: Budgeting isn’t about deprivation. It’s about understanding where your money is going and aligning it with your goals.
Build an emergency fund: Before investing heavily, make sure you have a safety net. Three to six months of expenses is a good starting point.
Reduce debt: High-interest debt is like carrying a 20-pound weight on your back. The returns on paying off debt are far more predictable than the stock market.
Get insurance: Health, life, disability and homeowners’ insurance protect you and your loved ones from life’s unexpected curveballs.
Save for retirement: This is where investments come in—but with a purpose. Make sure your retirement savings are growing steadily, with or without market drama.
Consider tax planning: The taxman cometh. Good tax planning ensures that you keep as much of your money as possible.
Create an estate plan: This might seem excessive if you’re young or single, but estate planning is about ensuring your assets go where you want them to in case something happens to you.
If you’re itching to dive into the market, I get it. There’s a lot of temptation. But make sure you’ve got these basics covered. Start with small steps—set aside a bit each month for an emergency fund, chip away at that high-interest credit card balance or create a budget. Once you’ve got the basics in place, your investments will finally have a purpose. You’ll invest not because it’s exciting but because it’s part of a bigger picture.•
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Dunn is CEO of Your Money Line powered by Pete the Planner, an employee-benefit organization focused on solving employees’ financial challenges. Email your financial questions to askpete@petetheplanner.com.
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