What Is Your Financial Plan

What is your financial plan? When I ask this question to people I usually get an initial blank/confused look followed by questions like do you mean what investments I have? Or what am I saving for? Or How do I plan to get out of debt? The truth is that it’s all of these questions and more bundled into one simple statement. 

Here’s another way of phrasing it. Do you have a view of what your finances should look like in 5 years time (e.g. savings, investments, level of mortgage paid off etc). Without having a plan you might get lucky and muddle through towards the right direction in at least one of these areas but it’s far more likely that your finances might be in the same place 5 years from now without a plan. 

One of my favorite quotes that I live by is by Benjamin Franklin: “If You Fail to Plan, You Are Planning to Fail”

Let’s take a look at some of the fundamentals that make up a financial plan.

Setting Targets and Goals

Let’s talk about goal setting. Take a moment now to imagine what your best life could look like if you never had to worry about money again. What would you be doing? Where would you be living? How old are you when you’re living your best life? Doing this exercise breaks the shackles of your current constraints and lets you focus on what really matters to you. 

Once you imagine what your best life looks like, the next steps are creating achievable steps to get there. First of all, how much is that lifestyle going to cost you?

Talking about goals specifically, there’s a ton of ways to phrase them but the easiest I’ve found so far is creating SMART goals. Smart starts for Specific, Measurable, Achievable, Relevant, and Time-Bound. There are plenty of posts out there but this one I personally 

I found this post to be the most useful as it gives you concrete examples of what they should look like.

Goals can also be short term, mid term and long term and it’s likely you'll need a combination of all three to achieve your financial plan. 

Writing It Down

I know this might sound obvious but you need to write your plan down. Your head is the worst place for remembering what goals you set, how you were going to achieve them and tracking progress. 

I’ve included an example template that here you can use to get started. 

Tracking Progress

Tracking progress can be done in a number of ways but you need to do it in order to create momentum and give you a sense of progress. This can be as simple as having a chart on the wall where you’re physically marking down your credit card debt or as sophisticated as having automated alerts on your phone to tell you to do XYZ action. The key thing here is doing a bit of experimentation and finding out what works best for you. 

Making Short Term Sacrifices Today For Long Term Benefits For Tomorrow 

The truth is that you can’t have your cake and eat it. Someone who is continually living beyond their means today is going to find it impossible to create any long term sustainable wealth. This is about figuring out what short term sacrifices you will make today for a better life tomorrow. After a while, they’re going to stop feeling like sacrifices and feel more like progress towards your long term goals. 

Creating Discipline

This is an area that usually gets overlooked. You create discipline by establishing successful habits and rituals in place to ensure you stay on track for the long term. There will be setbacks but as long as you’re broadly heading in the right direction, then it doesn’t matter. A great book on habit forming is Atomic Habits by James Clear. 

Catering For Emergencies / Unexpected Events

There’s likely some kind of emergency or unexpected event that is going to come along on your journey to long term wealth and financial freedom. Having a buffer fund in place means that you’re not going to need to dip into savings which are for your financial goals and dreams. There are a few schools of thought of how much of a buffer you need. Some people say 3 months of income whilst others say 6-12 months of income saved in an emergency fund. The key thing is deciding what figure you’re comfortable with. 

How Will You Fund Your Financial Plan

Is your salary alone enough? Is your super enough? For those interested in learning about investing, I offer a series of [courses] that take absolute beginners and turn them into investor pros. Could this be the extra income stream you need in order to fund your plan? Get in touch today to book your 15 minute free consultation.

Now you have the core fundamentals of a financial plan, when should you start creating it? Today. it will be a great document for you to look back on in years to come to see how far you’ve come.

Disclaimer

None of  the content is intended to provide you with personal financial advice. Information provided is factual and educational in nature for you to apply at your own discretion. 

You may wish to seek independent financial advice from a professional advisor for advice pertaining to your specific situation.