No matter how hard some people try to make personal finance all of the concepts are pretty darn simple. You don’t need to be a certified financial planner and you certainly don’t have to hire one to come up with your own financial plan.
In fact, over the past years I have found that three simple concepts have been all I needed to create a financial plan and follow through.
When you begin to think of creating a financial plan most would advise you to start with goals. I think that’s a big mistake and can personally attest to the fact that I’ve created goals in the past that had no meaning.
In a world where we share almost everything with each other and can often feel the pressure of needing to keep up, it’s best to start your planning with purpose. If you start by naming goals you might find you’re choosing someone else’s goals and not the ones that really have meaning for you.
Your purpose is your why. What you want out of life should steer your goals. If you want to live more stress free and not have to worry about payments, debt freedom could be your goal. Do you want to volunteer your time instead of working? Financial independence could be your goal. If you’re wanting to feel more financially stable building an emergency fund could be the goal.
Before you can set the right goal you need to figure out your purpose.
Once you have your purpose figuring out your goal should be relatively simple. Very often your purpose will require you to have more than one goal. If this is the case you’ll need to figure out whether it makes sense to work on these collectively or focus on them one at a time.
Here are a couple of examples:
Purpose: Build financial Stability so you’re not Always stressed about money
Goals: Create an emergency fund, Pay off all debt except the mortgage
In this case it makes sense to first focus on creating an emergency fund while making all minimum debt payments. The emergency fund will help shoulder you from having to rely further on debt when unexpected expenses pop up. (Like car troubles or a bill you completely forgot about it.)
After an emergency fund is established with a minimum of $1,000 (more, depending on your situation.) You can focus all of your efforts on paying down your debt.
Purpose: Establish roots for your family and also plan for the future
It’s important for this family to establish roots by purchasing their first home for their new family and baby. At the same time this family is also very concerned with planning for the future and currently have zero debt. They want to ensure that they are set for retirement and can also help their child with future education costs.
There are a couple ways this family could go about their goals. They could pause or lower their investments to save for a down payment more quickly or they could work on all three of these goals simultaneously.
There are no hard and fast rules when it comes to goals. What’s important is that you assess your situation and figure out the right setup. In many cases it will be obvious in what order you should go after your goals.
After your goals are set it’s time to create the strategy. Strategy is that step-by-step action plan. It could be the order in which you’ll pay off your debts. What you’ll invest your money in, how often and how much. How much you’ll save out of each paycheck for your down payment and where you’ll stash that money.
When it comes to strategy you need to have very specific actions in mind. This will keep you accountable and will act as your roadmap.
In many instances developing your strategy will require you to do a bit of learning so that you can make the best decision possible.
Putting Your Financial Plan Together
You’ve probably heard that writing your goals down increases your chances of achieving them. In fact, a 1979 Harvard MBA study proved this to be very true.
In 1979 Harvard MBA business students were questioned about their goals. They found that only 3% of students had written down their goals with detailed steps on how they would achieve them. Another 13% of those students had goals in their head but never wrote them down. Eighty-four percent of those students had no goals.
When interviewed 10 years later the 13% who had goals but hadn’t wrote them down were earning twice as much as the 84% without goals. But what of the 3% with goals and written plan? They earned 10 times as much the other 97% of student combined!!
Creating your financial plan and writing it out – purpose, goals and strategy can hugely increase your odds of actually achieving what you set out to do.
The method doesn’t matter so much. I like paper planners so I write my goals in my planner. You can opt for an App or an excel spreadsheet or write everything down in a notebook earmarked for goals. The method doesn’t matter as much as you writing out your goals and strategy and looking over it regularly.
Can You Change Your Plan?
The last thing you should be aware of when setting your financial plans is that it’s okay to change any or all parts of your plan.
As time goes on your life will change. Your purpose may change and sometimes the strategy you’re using will need to change.
Changing your goals does not equate to failure and you should give yourself grace if you find yourself in different circumstances than you started out with.
Just be sure to assess your progress as you go and make sure your goals and strategy still line up with purpose you have for your financial life.
Have you created your own financial plan?
Alexa Mason is a freelance writer and wanna be internet entrepreneur. She is also a newly single mom to two beautiful little girls. She chronicles her journey as a single mom trying to make it big at www.singlemomsincome.com.