When you hear the words, financial plan, what comes to mind? Do you see it as something that should be left to the experts or those who are wealthy? Or maybe you struggle with thinking if it’s even relevant for your financial needs.
The truth is, creating a financial plan is one of the most important decisions you can make to ensure financial stability. Quite simply, a financial plan is the best way to reach not only your financial goals, but your life goals. And it does not matter your age or how much money you may or may not have. A clear financial plan can take you from where you are today to where you want to be tomorrow.
What is a financial plan?
A financial plan is a well-thought-out and thorough document that contains your current financial situation, your short term and long term goals, your budget, your cash flow, and strategies that will help you to achieve your goals. A successful financial plan calls for setting goals, developing a clear and concise plan to achieve them, and putting them into action.
It may sound like much, but it’s totally doable. A financial plan is a blueprint for handling everything you do with your money including circulating, saving, investing and using credit. There are three types of credit that you can learn about from our previous blog.
When building your financial plan, start by taking the time to thoroughly assess your current financial status and, as said before, set specific financial goals. To start, be sure to set attainable goals. And by this, we mean realistic ones. Create a budget based on your (actual) income–the money you truly have and not what you wish you had. This calls for being honest with yourself.
Once you have completed your plan, review it at least once a year and make any necessary changes that are needed. Did your income decrease or increase? Have you begun investing? Did you experience any financial losses? Having a steady income is one of the first steps in establishing a financial plan. Whether from salary or investments, a stable income is at the heart of this planning process.
A financial plan gives you a sense of financial independence, security and maturity.
Financial Independence is when you have accumulated enough finances in investments, retirement or savings. And the income you receive from these assets is enough to meet your financial needs for the rest of your life. Attaining financial independence is not an easy feat. Your daily spending will have to be evaluated. Then, you will have to decide if your wants are more important than the goals you’ve written down.
Achieving financial independence can be a reality once you avoid consumer debt, excessive spending and keep a watchful eye on your cash flow. The key to real financial independence is to spend/circulate less than you earn and in doing so you will have more to save or invest.
Financial Security is when you have peace of mind about your financial status. If you’re reading this blog, we believe that this is a goal of yours.
Your financial security depends on the strategic plan that you establish. Having a strong plan in place will ensure that no matter what comes your way, you will be well prepared to address it. Proper insurance, home ownership, vehicle ownership and a financially-stress-free life will give you a sense of comfort that is almost comparable to none.
Many of us don’t think about financial security until it is too late. Although you may be in the very early stages of creating your financial plan, know that it is never too early to think ahead. Life can be very challenging and there are uncertainties in it that we may not want to think about, because they make us uncomfortable.
However, if we’re going to have a successful financial plan, we have to think beyond today. A stress-free life is a natural byproduct of financial security. This comes from the planning and thinking that goes beyond the here and now.
Financial Maturity is a combination of elements that lead you to have confidence in your financial planning. This does not happen in the blink of an eye, though. The reality is many people will not reach financial maturity until later on in life. How do you know you’ve reached financial maturity? A survey done by Zopa, a lending company, suggests that most people don’t reach financial maturity until they’re 31.
Educating yourself about your personal finances is a key step in financial planning. In fact, this was one of our steps in our recent blog on financial commitments for 2021. You can build your financial literacy by reading financial literature, listening to financial advisors, or by subscribing to our blog. We are always striving to educate our subscribers on their financial journey.
A financial education is highly important and you really don’t have to spend (much) money to get one. There are a ton of online resources that you can access for free. The more you know, learn about, and understand your finances, the better prepared you will be in the future.
Financial planning and preparation helps you save and accumulate your assets. This preparation helps you to know what is required to support your lifestyle. Looking at your budget on a monthly basis will help you make sense of it. Stick to your budget. Straying from your budget will take you further away from your goals.
Preparation is an important key in your financial plan. If you know that you will be in the market for a vehicle, prepare yourself by knowing what you can afford to pay monthly. Have your financing already in place so all you have to do is go in, explore your options, sign the paperwork, and drive away in your vehicle. When you are prepared, it can save you time and money.
A healthy relationship with your money is essential to your financial plan. Almost everything we do in life has some monetary consequences. Whether it’s where we decide to live, what we decide to drive, or where we decide to shop–money is involved. Money is an excellent commodity and, like with anything you value, you should take great care with it.
This does not mean, though, that you hold on to it and bury it away.
The poor and the middle class work for money. The rich have money work for them.
Money is meant to be circulated. But be mindful of where, when, how, and who it goes to. A good relationship with your money ensures that you are keeping with your budget and financial plan. We believe that when you treat your money right, it will return the favour.
Now let’s look at some other aspects of your financial plan:
Capital includes the cash and other financial assets that is held in your financial portfolio. Having a sufficient amount of capital allows you to have a cushion for any unexpected expenses. Your capital can be adjusted as you move further into your financial plan. It can increase if your level of income increases, or decrease if you lost income or had an unforeseen expense.
Cash Flow is essential to your financial plan. It allows you to determine and keep track of money coming in and going out. When your cash flow is healthy, you can begin to think about investments and other sources of income. This can improve your overall financial well-being. As you closely monitor your cash flow, you will be able to see the value of your financial plan. To get started, create your own personal cash flow statement here, by downloading this free Microsoft Excel template.
Savings is where the budget in your financial plan comes in. Once you have set your goals and put your budget in place, you can start seeing the slow and steady accumulation of your funds. If you establish a consistent saving pattern, you can see this small sacrifice reward you over time.
Your financial plan will help guide you on what you can save, once you have taken care of your living expenses and needs. A good rule of thumb is to save at least 10% of your monthly income.
Many people ask the question, Why should I save? The simple answer:
Savings alleviates financial concerns.
Financial worry can lead to stress, which causes numerous health issues. Of course, this means added expenses such as medication and doctor bills. Healthy saving practices give you the benefit of feeling (possibly) at ease if, and when, an unexpected expense or emergency arises. The extra measure of security that savings provide is priceless.
When you become efficient at making and following the financial plan you have developed for yourself, you will be able to live comfortably. This can mean purchasing the items you need and want without feeling guilty or becoming stressed out. It can also mean having the financial leverage that you did not have before.
Granted, our lives are quite busy and complex these days. That said, we do recognize how easy it can be to lose sight of your plan. We would encourage you to regularly review your financial plan. Take a look at your financial goals at least once a month. This will help you to see how far you’ve come and help you stay on course.
Having a financial plan makes your journey a lot smoother to navigate, and by establishing goals, creating a budget and accumulating savings you will achieve the success that you want on your financial journey.
As we always affirm, we know, and believe, you can do it!
Are you ready to start to make your financial plan? We would love to hear how this information inspired you. Our hope is that this blog has shown you how important a financial plan is, and that you do need one. Why not start to create one today?
For more insights on all the financial possibilities available to you, feel free to contact us or reach out to Empowering the Possibilities on Facebook and, of course, don’t forget to share this information with others.