In our previous blog, we talked about settling into the reality of the 300 plus days ahead and making financial success a priority. At the beginning of each year, we create a new budget and set new financial goals for the year, But this year, let’s take another step toward success and create a vision for your financial journey. To do so, we will look at the seven steps to creating a financial vision statement.
Why do you need a vision statement, you ask? It’s simple. Did you know that every institution/business, large or small, has a vision for their company? So let’s look at our personal financial journey as a business. If we think of it as a business and treat it as one, we will begin to see the importance of this mindset over time.
Looking at your budget goals for this year, let’s create your financial vision statement, so that you can hit your financial target for the days, weeks and months ahead.
What is a financial vision statement? And why do I need one?
Vision is the ability to close your eyes and imagine a future that does not yet exist.
A financial vision statement is a mental picture of the results you want to achieve over time. It is not a pipe dream. It is a clearly articulated, complete picture of real results with real benefits.
By creating a financial vision statement you will be able to have a real sense of direction and purpose when it comes to your finances. When you have a budget, goals and a vision statement, your potential for financial success will increase because you are focused, disciplined, dedicated and committed to the overall process.
A financial vision statement will help you to stay focused on your budget and goals and it will remind you of your expected accomplishments. Your financial vision statement will describe what your financial expectations are and how you will go about meeting those expectations. Notice that it is anchored in reality.
Just as organizations use their vision statement to motivate and guide the efforts of their employees, you will use your vision statement to motivate you to higher financial levels.
How to write a financial vision statement
Writing a personal financial vision statement is much easier than writing one for a business. Though there are similarities, the personal financial vision statement is certainly less complex. In order to write a financial vision statement there are a few steps you should follow. These steps will enable you to create an accurate vision statement with measurable and attainable goals.
STEP 1: Make a determination of your purpose and your financial position. Begin with, Why am I writing a financial statement? This is one of the first questions you should ask yourself before attempting to create a financial statement.
This part of the process helps you to understand your financial position and create a big-picture objective of where you want to be in your financial future. Be honest when you assess your current spending. Doing so will allow you to see where money can be saved as you move forward on your financial journey.
It also helps you to discover areas of your spending you may have loosened your discipline on. Once identified, now is the time to make the necessary corrections.
STEP 2: Include your short-term, mid-term and long term goals. One of the key steps in creating your financial vision statement is in identifying your goals. Writing down your goals helps keep you focused.
Setting goals helps trigger new behaviours, helps guide your focus and helps you sustain that momentum in life. – positivepsychology.com
Your goals can be broken down into three different types.
Short-term goals are goals that are attainable within one year. These goals can be as simple as opting to eat at home more instead of going to a restaurant or buying food, because you want to save more.
This will not only be healthy for your body but also for your wallet.
Mid-term goals are goals that take a little longer–usually between one to three years to accomplish. Or they can even be from three to five years. These goals can include paying off a student loan or going on a long overdue vacation.
Then there are your long-term goals. These goals are your main objectives, and they take more of a commitment. They can be anything you want them to be, from buying a car, a house or even early retirement. On average, these long-term goals can target anywhere from 10 years and beyond.
No matter what type of goal you may have, each kind plays an important role in your financial vision statement.
To help with these goals, it’s often recommended to create a vision board. They can be quite helpful. As seeing is believing, having a vision board up in plain site for you to see can help you to better envision your future financial goals.
A vision board is a collage of pictures, writings, and even objects that allow you to see where you are going and how you are going to get there. For example, if one of your goals is to purchase a new car, get a picture of the car that you want so that you will visually see it and the more visible it is the more real it will become. A vision board is not just a board that you fix up and never go to again, it is there so that your vision, focus and drive can be guided by it.
STEP 3: Understand how money will influence or impact your goals. Understanding how money influences your goals is important when creating your financial vision statement. It is important to see how much of your financial vision goals depend on a continuous source of revenue.
If your goals are heavily dependent on money, then it is wise to create multiple streams of income. This lessens the chances of your financial vision being delayed due to loss of income.
STEP 4: Becoming debt free. Being debt free is important to most people, but not everyone wishes to become completely debt free. Some individuals don’t mind having a loan or two to repay. If your goal is to eliminate your debt, our blog on reducing credit card debt is a great place to start.
Having a substantial amount of debt can hinder your chances of financial security. Debt payments can have a negative impact on the amount of money, if any, you can save and cause you to have unnecessary stress. Stress can have a detrimental effect on your health. And this can in turn create more debt by incurring doctor, prescription and/or medical bills.
Owning your assets, such as land, property, or even your vehicle will have you well on your way to becoming debt free. Simply put, assets are any resource or item of value that can be converted into cash. Owning your assets does not mean that you are still paying a mortgage or car loan.
If you are still paying on your home or car, the bank owns your assets and not you. As the person creating your financial vision statement, you have to recognize if being debt free is a goal for you. If it is, then, soon enough, you will realize that being debt free enables you to become financially secure.
STEP 5: Determine what financial success would look like to you in 1 to 5 years. Defining financial success will differ from person to person. Your 1 to 5 year vision of financial success might vary significantly from your spouse, for example. But the key is to personally own what you want your financial success to look like.
Be as detailed as possible. Be specific. Own it. Make it yours. What does it look like, feel like, sound like, once it is realized?
This is not the time to burden yourself with social pressures and the expectations of others. It’s about being realistic and fair with yourself and planning with your best interest in mind–and not (necessarily) that of others.
Your vision of financial success should be clearly outlined in your financial vision statement. This will help you to stay on track with your goals so you can achieve your financial objectives.
STEP 6: Acknowledge any possible stumbling blocks that can happen. That said–expect the unexpected. It is almost impossible living in today’s economy to not have an unsuspected expense. No one plans for their refrigerator or washing machine to stop working. No one expects to get into a light fender bender.
But these things do happen. These expenses can have a negative impact on your financial vision statement as you may not be able to meet a specific goal at the time expected. In most instances, our short-term goals tend to be the ones most impacted by these unexpected expenses.
On the other hand, sometimes these unexpected expenses are major and may throw you off balance and make you feel like you want to give up hope on your financial vision statement. But putting the right plan in place helps you to minimize stress and worry about what is going to happen after any setback. It boils down to preparation.
“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.” Colin Powell
Step 7: The importance of a contingency plan. We are living in very uncertain financial times and the goal is to stay ahead of the game so as to not lose. Like every successful business, you must be prepared for uncertainty. This is where your contingency plans come into play. Every good financial vision statement has a contingency plan.
A contingency plan is a back-up plan that ensures that you are protected against any unforeseen circumstances. It helps to minimize loss and gives you peace of mind where you can rest assured that your financial vision will still be on track.
According to smallbusiness.co.uk, a “financial contingency plan refers to preparing a course of action and allocating finances and resources during times of financial crisis or other emergencies.” The aim is to help maintain your stability if an unexpected emergency arises.
A contingency plan seeks to answer the what/if questions? And for as many what/ifs you can think of, you should be able to develop a contingency plan with a suitable answer.
These seven simple steps can put you well on your way to having a strong financial vision statement. When put together, your financial vision statement can strongly guide the success of your financial journey. It will assist you in making wiser financial decisions and keep you on track with your short, medium and long-term goals.
By now, you should be seriously thinking about the importance of a financial vision statement. If you are, we would love to hear what next steps you will now take to get started. And if you need any help in preparing one, feel free to contact us with any questions.
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