There are folks who feel that they will get where they need to be in life (although they may not be sure where that is) if they put one foot after the other. They feel financial planning sounds difficult, hard to imagine, a task for accountants, financial advisors, or stockbrokers. It isn’t something the average person does on their own.
Why not?
Whose Life Is This?
Financial Planning is not an art. Nor is it a science. It is simply a map leading from where you are now to where you want to be. Each financial plan or map is unique. One size does not fit all. There is the ultimate goal(s) you have and there are stops along the way that are of specific interest to you and your loved ones.
Do you know what you want and where you want to be in one, three, ten or thirty years? What kind of a lifestyle do you want to live while working toward these goals? What are you willing to do (or do without) to achieve it? How long do you want to work? What about retirement? These and many more questions are specific to you. It’s your life. You are the one determining where and how your plan takes you.
What Do You Need to Know?
Spend time thinking about how you want your life to unfold. If appropriate, discuss it with your significant other. Compile a list of questions detailing what you need to know about where you’re going. It may be helpful to start with the goal, whether it is paying off your mortgage, early retirement, a world cruise or paying for a child’s college tuition.
Retirement as an Example:
One day you will want to leave or significantly reduce the amount of time dedicated to your life’s work. Would you like to take early retirement? What are your genetics like – how long did your relatives live? What kind of lifestyle do you want after you finish working? How are you going to support it?
Your Answers:
After you’ve written questions for each major goal you’ve identified, take the time to thoughtfully, and with calculator in hand, project your answers. How much money do you need to have to support your goals?
Do you see this as time well spent? You are creating the future you want to have AND making the map you’ll need to get there. What could be more worthwhile?
Helpful Resources:
The questions are yours to answer however, there are abundant resources available to help you with your planning process. Fill-in-the blank forms are available at stationery stores or from your local banker. Financial planning software is also available to help you capture facts & figures you need to know before drafting your plan. Brokers of all description – financial, insurance, banking, financial planners – make their living providing structure to this planning process. Many use on-line resources to compute and calculate the best way for you to reach your goal(s).
A Word of Caution:
Remember this is your plan. There may be financial products that will help your money grow thereby assisting you to reach your goals. Just make sure that these are the best products for you and not just the products sold by the advisor you’ve consulted. You may want to have similar consultations with other kinds of advisors especially those who do not represent specific products.
Self Directed Planning:
You have identified your life goal(s) and how much money you anticipate needing to make them a reality. Examine your current financial situation. Do you have a current budget? Do you know where your income is going? It is important to get a handle on how much disposable income you have each week, month, year, as this is the money that can be directed to achieving your long term goals.
If you have interim financial goals, such as paying down a mortgage, saving for college, etc., examine ways that this can be accomplished. Involve all key players. Your banker may suggest a more effective mortgage payment schedule, the potential student can begin the search for grant and scholarship funding, your significant other may agree to eliminate a regular expenditure to channel the funds toward mutual goals. Once you know what’s at stake, it is easier to make sacrifices.
What investment programs can you put in place now to ensure you will have sufficient funds for the retirement lifestyle you have identified? You can start small and increase your contributions as your budgeting frees up more disposable income.
The Plan:
There are many components to your financial plan:
The weekly/monthly/annual budget manages:
long and short term debts
daily living expenses
regular savings for purchases & vacations
Goal setting identifies:
how you want to live your life
major events that mark your success
the money needed to finance your goals
An Investment strategy details:
retirement savings
long and short term investments
tax managed investments
The gap identifies:
difference between where you are and where you need to be
resources needed to close the gap
strategic plan to achieve the needed resources
Whether you chose to create your own financial plan or provide pertinent information to an advisor of your choice, your ‘map’ is a dynamic document. Review it regularly. Even small successes will provide the encouragement you need to continue working your plan. Keep your eye on your goal(s) and remember if you don’t know where you going, you may end up somewhere else.