Skip Navigation

Planning: The Key to Financial Success

April 2016

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

Phroogal, a social media company that provides financial information targeted to young adults in the millennial generation, made a “pit stop” at Rutgers University in 2015 as part of a month-long cross-country financial education road trip called The Road to Financial Wellness. Phroogal founder Jason Vitug presented a seminar for faculty and staff called Money & Mindset: The Road to Financial Wellness, which focused on the importance of life planning and wise spending.

Vitug encouraged attendees to “envision the life you want to live,” and “have a life plan-not just a financial plan.” He also warned about the dangers of becoming over-extended on credit cards, which can lead to high interest charges and delayed savings for retirement and other financial goals. Graduating from Rutgers in 2007 before the CARD Act was enacted, he charged $5,000 on a credit card that he applied for to get a Frisbee.

Vitug is not alone in recognizing the powerful impact of the planning process. Future-mindedness is a key personality trait that has been linked with successful financial outcomes. A 2015 study published in the Family and Consumer Sciences Research Journal found that a long planning horizon plays an important role in explaining household asset accumulation and financial security.

The 2016 Savings Survey by the Consumer Federation of America found people with a “savings plan with specific goals” save more successfully than those without a plan. Planners are more careful spending money and more likely to make savings progress and have sufficient savings for emergencies and retirement.

Planning begins with setting specific goals with a future date and dollar cost. Experts refer to these as SMART goals: Specific, Measurable, Attainable, Realistic, and Time-related. An example is “Save $6,000 to buy a car in three years.” Annual, monthly, and daily savings targets can then be set by “doing the math”: $2,000 per year, $167 per month and about $5.50 per day, in the above example. Financial goals can be further broken down by time frame: short-term (less than 3 years away), medium-term (3 to 10 years away), and long-term (more than 10 years away). The Rutgers Cooperative Extension Financial Goal-Setting Worksheet is a useful tool for making financial goal-related math calculations.

Several recent studies have classified people according to their financial practices and identified attributes of financially successful people. Each has used a different term to describe a positive constellation of financial behaviors: Financial Well-Being (Consumer Financial Protection Bureau or CFPB), Financial Health (Center for Financial Services Innovation), and Financial Capability (FINRA Investor Education Foundation). All three entities, along with Phroogal, which uses the term Financial Wellness, include goal-setting and future planning behaviors in their descriptions of financially successful people.

Personality traits affect patterns of thinking/behaving and are relatively stable over time and across various life situations. For example, researchers have found that personal traits, such as conscientiousness and a propensity to make future plans, are associated with positive health and financial practices. A recent study found that individuals who engage in health information search behaviors, such as reading food nutrition labels, are more likely to engage in financial planning activities.

In another study, people at a worksite received a workplace health screening. Researchers then followed the workers for two years to see how they attempted to improve their health, and if those changes were tied to financial planning. 401(k) plan savers showed improvements in health behaviors about 27% more often than non-contributors despite having few health differences prior to the program. Personality factors were believed to be a factor.

Want to be healthy and wealthy? Set specific goals, develop a realistic action plan, and work your plan. Every small step forward makes a big difference on the road to a better financial life. The Personal Health and Finance Quiz provides suggested health and financial practices to get started.