The Importance of Creating a Financial Plan
In last week’s blog post I talk about how I organize and plan out certain details in my life. If you have not read that you can do so here. The reason why I think it is important to have a basis of understanding of planning is so that we can move to our next topic at hand. I believe planning is an essential part of life! However, when it comes to financial planning I get the sense from many people that they are going through certain phases in life without a plan. This may seem trivial to some, but I cannot stress how important it is to have a financial plan. If creating a plan will set us up for success, then imagine what creating a financial plan will do for us!
I know that you, faithful readers, have a growing interest in financial planning; but maybe you are unaware of the why/what/how for this. In my line of work, I come across various types of people! Those who are afraid of spending money, those who are afraid of how much money they spend, and everywhere in between!
If you are afraid of spending money… make a plan.
If you are a crazy spender … make a plan.
If you are a moderate spender … make a plan.
The Why of Financial Planning
Set yourself up for success, friends! If you do nothing to create goals and stick to them, it will be harder down the line. But, also try not to get stuck in your head too much on getting started, because then you may end up in an endless loop trying your hardest to stay positive while being your own worst critic.
Part of creating a financial plan is to figure out what your need is, plan for it, and then adjust accordingly. Focusing too much on one area may hold you back from moving forward. I feel at this time, it is important to state that this blog post is in no way trying to make you feel stressed, but to bring light to a topic I feel is important.
The What of Financial Planning
What sorts of things might you be planning for, you ask? Well, do you plan to get married? Do you plan to buy a home? Do you plan to have kids? These are all specific phases where you will definitely want to create a financial plan. You may even want to simply buy a new piece of furniture and in order for you to not get in debt over it, you will also need to create a financial plan to get there.
Implementing a Financial Plan
You might be wondering how can one implement a financial plan in your life. Maybe you feel there is not enough money in your budget to do so. Here are my tips for creating a financial plan and implementing it right away!
Be mindful. Make sure you are specific as to what you are saving for. Do you want to buy a house in the future? Are you planning to have kids? Maybe you want to start your own business, but how will you get there without a financial plan?
Be intentional. If you are the type of person to start a project and then give up, recognize that in yourself first. Make sure to set your intention to your financial plan. Do whatever you have to do in order to put that intention and your financial plan out in front of you everyday. Drill it in your heart and your mind. Whether that be a Post-It note on the bathroom mirror. A note in your car. A note on your phone. You need to have that reminder in front of you everyday. I think the pitfall of this is when extreme situations happen. Like if you are feeling extremely stressed out and you go spend a few hundred dollars at the mall. Whatever your vice may be. But if you have that constant reminder in front of you everyday you are more likely to stick to it.
Start small. If you are just starting out creating a financial plan for the first time, your goal for your first month should not be to save $5,000. Maybe your goal is save $10 the first week, and $20 the second week. Maybe your goal is to save $100 for the first month. This is the part of financial planning where you really want to set yourself up for success. Having these small goals in place makes the task more palatable. Incremental change now is monumental change in the long run.
Do your research. Whatever goal that you have in mind and the plan that you put together to get there you will need to also do your research. Research how much it will cost for you to buy a house, or build up your family, or start your business. Then the next step is to estimate the amount of money you will need to start putting aside in your savings. Put an actual dollar amount to your specific goal, and create a financial plan on how you will get there. For example, if you want to save up for a down payment on a house that you intend to buy in the next year. First research how much houses are going for in that specific market. Then research how much you think you will be approved for on a home loan. Divide the down payment by twelve and that is how much you need to save each month for one year before you are ready to make that down payment on your new house. When creating the estimate, always make sure to leave a little room for a contingency plan. Things change, and you want to make sure that you are able to be flexible and change along with it. So even though you have your financial plan, you will also have your contingency plan to ensure that you are flexible and will be able to adjust accordingly.
Make sacrifices. Part of having a financial plan is also making sacrifices. When you have your eyes on a specific goal, and you have a path on how to get there you are going to need to stay disciplined and focused. There will be times along that journey that will be very tempting to blow all your savings on. Let’s say you are saving up for a down payment on your house, you may need to say “no” to eating out with friends; or going on vacations. But if you are mindful and intentional, you set your sight on the plan ahead and you know that these sacrifices are for your future, it might make saying “no” a little bit easier.
Give yourself grace. You may not always meet your goals for the month, but that is okay! You will adjust for the next month and move on. Dwelling too much on your past failures may make you feel unaccomplished and possibly unmotivated to continue on with your goals.
Celebrate. Sometimes all it takes is a high-five to know that you are on the right track. Allow yourself to share your small victories with your partner, family, or friends and allow them to celebrate together with you for your accomplishments!
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