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“Plans are worthless, but planning is everything” – Dwight D. Eisenhower
Whether you’re starting a business or growing a career, having a plan is vital to achieve the goals you have in mind. It is a critical outline that helps guide you and make smarter decisions along the way. Even though things do not unfold as you expect them to sometimes, that doesn’t mean you don’t need to plan anymore. In fact, unsuccessful plans teach you to be flexible and be versatile to the things outside your control.
Having a plan will not just save yourself from momentary distress but will also help you in mitigating the probable issues that may eventually arise. This serves true for all areas in your life, including your financial well-being. And today, I am hoping to explain what a financial plan is all about — including the basic steps on how you can create one for yourself.
What is a financial plan?
Have you ever traveled in an unfamiliar place? Perhaps a Waze app or a GPS device once helped you get to your destination by giving the exact directions and the best routes to follow.
A financial plan works the same way. It serves as your road map to get you to your desired destination without getting lost or getting stopped by temporary roadblocks. A financial plan therefore helps you map out the steps needed to achieve financial security by following a predetermined financial course.
You can actually make a financial plan for yourself by following these basic steps:
(i) Goal identification. Identify all your financial aspirations starting, it could be debt you want to tick off to that dream retirement you want to enjoy in your golden years. In this phase, you have to be specific as possible and include the target amount and time duration necessary to achieve those goals. Think S.M.A.R.T. (Specific, Measurable, Achievable, Realistic, and Timely).
(ii) Data organization. After identifying your financial goals, categorize whether it is a short or long-term goal. A short-term goal is something you want to accomplish soon (minor home improvements, travel, debt payment) while a long-term goal requires several years to achieve (education, retirement, home mortgage). From there, establish a priority list of those goals based on their urgency.
(iii) Analysis. Carefully examine your current financial standing in relation to your income, savings, living expenses, and debt (especially the interest rates!). Now, try to ask yourself, will you be able to hit the targets you listed in the goal identification process with your present financial capacity? If not, then proceed to the next step:
(iv) Problem identification. In this step, you have to be brutally honest with yourself and carefully identify the problems preventing you from moving forward financially. Are you earning too little? Are you spending too much? Do you always resort to debt? Whatever that is, write them down. Remember, this is one crucial step since your course of action highly depends on resolving those problems.
(v) Ask recommendations and develop your own financial action plan. Now, you have to come up with a detailed course of action by considering your current situation, financial values, risk appetite, and present economic conditions. If you are not that confident with the strategy you just developed, you can ask for recommendations from people who are experts in this field, someone like a Registered Financial Consultant®.
(vi) Plan implementation and results monitoring– This final step is the most important one. Bear in mind that financial planning does not end on having a financial plan alone. You actually have to get up and implement what you have planned. Apart from that, you have to monitor your results. Constantly reevaluate your progress from time to time and revise your financial plan if necessary.
Though you can make a financial plan for yourself through following the basic steps I just mentioned above, you might miss some important points which are vital to have a sound and effective financial plan. You may want to outsource it to an advisor – preferably one that is fee-based and an RFC® – especially if you:
- Don’t have the time to make your own financial plan.
- Don’t have the knowledge on financial tools such as investments, insurance, and more.
- Want to have a professional opinion on the financial plan you created for yourself.
- Are bound by emotions and you need someone to view your current financial situation in an objective way.
Creating a financial plan helps you shape your financial life in a way that is critical to your financial success. Regardless of doing it yourself or working with an advisor, make sure to have a plan. Planning is indispensable after all.
By the way dear reader, we’re planning to set up a Financial Journey Workshop soon. If you join up, you’ll learn the ins-and-outs of planning for your Financial Journey from goal setting to planning out your portfolio and even to passing on things to your loved ones.
Disclaimer: Just a reminder, dear reader, that the content in this column is my opinion only and should not be construed as investment advice because I am not your financial adviser, neither did I take into consideration your personal objectives, financial situation, needs or circumstances as your fiduciary. This column is mainly for your entertainment and education only.