“A goal without a plan is just a wish.” – Antoine de Saint-Exupéry
To know the way forward, you need to make a plan. And to create a successful plan, we must understand the key elements and recognize what stands in our way.
It’s easier and more common (maybe even more natural) to think about what we don’t want, versus thinking about what we want. Fixating on what we don’t want keeps us stuck and ensures we’ll keep getting what we don’t want. This reality is why I spend so much time writing and talking about the importance of creating a compelling vision for our futures.
I’m fond of saying the only way to live how you want is to know how you want to live. If we don’t have any idea how we want our lives to be, how can we expect to find contentment and fulfillment?
Here’s the good news; it’s easier than we think.
Daniel Kahneman famously referred to the financial services business as, “A major industry appears to be built largely on an illusion of skill.” I think Daniel was saying the financial industry has created a lot of undue complexity around a process (financial planning) that is fairly straightforward.
Financial planning doesn’t need to be complicated. It does need to be created and built in service of getting you the life you want. And it needs to fit. If you will not follow through on it, it’s not a good plan and will be a waste of resources. The most elaborate financial plan is garbage if you’re never going to follow it. The best plan for you could be the one you sketch out on the back of a cocktail napkin.
As a financial advisor, I’ve been helping people create practical financial plans for over 20 years. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Here’s what we’ll cover:
- What is a financial plan?
- Your vision for your future
- Your main objectives
- Developing strategies
- Tactics for making it happen
- Staying on track
Let’s get started.
What is a financial plan?
I’m confident there are a lot of wonderful definitions and parameters for what a financial plan is. I’m also confident I’m guilty of writing about them. But a financial plan is a lot of things.
Making plans for your family vacation is a financial plan. Laying out how you’ll get out of credit card debt is a financial plan. Determining when and how much money you need and want in retirement is a financial plan.
Is it better to have a thorough play taking into consideration every aspect of your life? Maybe. But don’t let perfection be the enemy of good.
There are six key elements of a financial plan:
- Your overarching vision for your future
- Your main objectives
- Strategies for accomplishing your objectives
- The tactics you’ll employ to meet those objectives
- Successfully implementing your plan
- Staying on track
Let’s go through each of them.
Your vision for your future
Goals = What you want
Values = Who you are
Habits = How you do things
Again, the only way to live how you want is to know how you want to live. You discover this for and about yourself by writing your personal mission statement, crystalizing your personal values, and creating goals. When you do this, you know who you are and where you want to go.
The more clarity you can get around what you want and how you want your life to be, the easier it will be to create the way forward. When you’re aligned with your values, goals, and lifestyle, the better the odds you’ll execute on your plan(s).
Your main objectives
Objectives are the specific results you want to achieve within a certain time frame. Common examples are becoming debt free, home ownership, paying for a child’s education, becoming an investor, reaching financial independence (the ability to retire), and giving money and leaving a legacy.
Perhaps you’d like to become debt free by age 25, become an investor by age 28, become financially independent by age 60, and start donating to charity by 65.
Whatever your objectives are, the more clearly defined you can make them, and when you’ll achieve them, the better.
Once you’ve developed your primary objectives, you need to create a strategy for making them happen. Essentially, it’s how you’re going to bring your objectives to life.
If you’re working to get out of credit card debt, your strategy could be earning more money while working to live on less. To put it another way, increase personal profit while reducing monthly expenses.
If you’re interested in becoming an investor, your strategy could be to become a stock market and a real estate investor.
To achieve financial independence, your strategy could be to be completely debt free, have income producing investments, as well as a large portfolio of stock market investments.
Tactics for making it happen
Once you’ve settled on your strategies for achieving your objectives, it’s time to get down to the actual tactics, or actions, for making them happen.
If stock market investing is one of your strategies for reaching your objective of financial independence, tactics could be contributing 10% of your paycheck to your company’s 401(k).
If developing a portfolio of investment real estate is one of your strategies for reaching your objective of becoming an investor, a tactic could be buying a new property every other year for the next 20 years.
For every one of your financial objectives and strategies, tactics will include monitoring your cash flow, keeping a budget, growing your emergency fund, and carrying the proper insurances. You’ll most likely also need to embrace the tactic of lifelong learning. While it’s more than possible to create your financial plan yourself, you’ll probably require new learnings in a lot of areas. Fortunately, everything you need is at your fingertips and available via your favorite internet device.
Estate planning is a challenging process. Often, you’re talking about your eventual demise and what you want to happen with all your stuff when you’re gone. Because of this, it’s easy to procrastinate, and hard to finish. I’ve talked with countless estate planning attorneys who work hard to help clients draft wonderful will and create trusts, only to abandon the process by never changing title, naming beneficiaries or moving assets. Failure to implement an estate plan is common.
And this is true of many aspects of planning and life. Entrepreneurs can create a business succession plan, complete many steps, only to walk away from the deal at the time of closing. Bottom line, implementing a plan is difficult.
Going into this process armed with this knowledge will help you avoid common pitfalls. Make sure you spend as much time as you can at each stage of your planning process, giving it your undivided attention. While there’s no silver bullet to guarantee the completion of your plan, this will position you for success.
Staying on track
What gets measured, gets managed. To successfully implement and complete your plans, you need to stay on top of them. Automate as much as you can by setting up automatic contributions. Create recurring meetings in your calendar to review your progress and make any necessary changes.
The more you can automate your plans, the better. This is true so long as you’re reviewing them on a monthly basis. Once you’ve created habits around your tactics, you can move from monthly reviews to quarterly.
Hope is not a strategy, and hoping that it’ll all work out will all but guarantee that your life will not turn out how you want it to. Sure, you’ll be ok, but I want more for myself, and for you, than to simply be ok.
Get started by getting clear on how you want your life to look. When you’ve done that, follow the steps I’ve laid out and you’ll be on your way to financial success.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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