You’ve done the hard work and created a financial plan designed to achieve your goals and dreams. But making a plan is only the start. Just like marriage, an effective financial plan needs good foundations, requires a long term commitment and takes care and attention to keep on track.
The strength of a building lies in its foundations. Well-built foundations keep building occupants safe and secure, even should a calamity such as an earthquake or flood strike. We instinctively understand that fancy furnishings won’t make up for inadequate, shallow foundations.
A financial plan is no different. The flash car and fancy furnishings won’t withstand poorly structured debt or other risks unless you have strong financial foundations to keep them safe, secure and protected. To have a financial plan that is easy to stay on track with you need it to have:
- Strong foundations
- Longevity
- Your lifestyle imbedded in it – i.e. it’s realistic
- Flexibility
Create a plan that can go the distance
Effective financial planning is a long term exercise. As such, your plan needs solid foundations created from six key elements. Your plan should:
- Protect your assets: Hard earned and inherited wealth of all asset types need to be protected from loss.
- Protect your income: Your ability to earn an income is what creates your standard of living and provides the foundation for growing your wealth.
- Protect against major events: Unfortunate and unpredictable events can strike at any time. Without the right protections, your financial plan can quickly be derailed.
- Structure your debts to enable financial growth: Debt which is poorly structured or of the wrong kind can limit your financial progress.
- Create passive income: An income stream which is not dependent on you working will ease your retirement.
- Invest for the future: Your money needs to last longer than you do. Will you have enough?
A financial plan which omits any one of these elements is likely to be a short term plan that could leave you either exposed to loss or leaves you vulnerable to short term market forces.
Reality Check Your Plan
As you move along towards your goal, it’s easy to get distracted. It’s easy to lose focus as finances isn’t the most exciting thing. While watching your savings account grow every week might not seem like fun, you have to keep your goals in mind.
Periodically reassess. Look at your plan, make changes as your lifestyle changes. Make choices that take you closer to your goal, not further away. If you aren’t reaching your goals, why not? Did a new LED TV catch your eye and take all your savings? Or did your fridge catastrophically break down and you needed to buy a new one?
If you started receiving more income, did you start spending more money? Or did you start funnelling that towards your goals too?
Life happens
Remember of course that circumstances do change. If your goal is to own a Ferrari but then are expecting a child, maybe the purchase of a family wagon would be more logical. It is vital to acknowledge that there are certain life changing events that will mean objectives may change, and that’s OK.
Weddings, children, car repairs, divorce or relocation happen and can derail the best laid financial plans. Simply adjust and carry on. While you may have to make changes to accommodate life plans, you certainly can still aim towards your big goal.
Stay focussed
Your financial plan is a long term plan. As such it can be difficult to remain motivated and you may even be tempted to put your financial plan in the bottom drawer gathering dust. DON’T! Keep yourself inspired. Check your bank balance and enjoy watching it grow. If your goal is travel, research your destination. If your goal is a house, keep on checking the local market and what’s happening. If your goal is a car, go test drive the one you like. Periodically remind yourself where you are heading and why.
Alternatively, you may be so keen to get to your goals that “steady” progress just doesn’t seem fast enough for you. This can leave you vulnerable to get rich quick schemes. Don’t be drawn into the latest share offer, or the new BitCoin trend, or any other sparkly new thing. You have a plan – stay focussed.
Financial planning success checklist
- Create an achievable long term financial plan
- Regularly reassess to adjust for changing circumstances
- Keep your goals in mind – motivate yourself
- Contact a professional to help with the financial planning process and to keep you on track.
