We tend to plan holidays, weddings and funerals but not our finances. Today is the perfect time to create a personalized financial plan.
The best financial revolutions happen when we take control and make goal-orientated decisions. Having a simple financial plan gives you a framework to plan and prioritize your income, expenses, and investments. It just makes life easier!
“By failing to prepare, you are preparing to fail.” ― Benjamin Franklin
Step 1: Determine Your Top Expenses
An expense is not a bad thing. It might suck up your resources for a certain period of time but you know it will serve you in the future, for example, a vehicle. The art is to prioritize your expenses and to decide where you want to invest your money. Choose your top five priorities that need your attention now and focus on them.
I like to calculate the percentage of my five expenses, that way I get a better overview of my current financial plan. And I feel less intimidated by the numbers. For example, if I contribute R500 to paying off my short term debt it feels very little. But if it’s 50% of my income, that looks much better.
Check out my article about The Emotional Side Of Short Term Debt if you need the motivation to pay your debt.
Step 2: Develop A Five Year Plan
Establishing a future goal gives you the motivation to stay consistent in your current (sometimes small) contributions.
I like to keep the plan simple and only mention three to five aspects in the five-year plan. It mustn’t be overwhelming. It must just be do-able.
Step 3: Decide Where You Want To Invest
This step walks hand-in-hand with step two. It is all about having a vision for your future. And that vision determines what must be done now to reach that goal one day. Although are not currently investing it’s a good habit to start working on, train your mind to look for market trends and to identify pitfalls.
Financial knowledge takes time and effort! The Ark wasn’t built in a day, neither is your ship to financial success.
My top three current investment considerations:
#2 Real Estate
#3 Tax-Free Savings Account (TFSA)
Step 4: Generate Your Emergency Fund
The riskier your income source, the bigger emergency prep you will need to do.
I don’t want to go to much into this topic. Everybody’s personality and personal traits will determine how much money they need to put into their emergency account. It’s totally objective.
It is important, very important to have an emergency fund. It has proven in the past to save many companies from bankruptcy and it can do the same for you!
Step 5: Find Your Motivation
One of my favorite Liz Josefburg (author of Target 100) quotes is when she said that consistency is more important than perfection.
If you have all the knowledge and financial literacy the world can offer, but to don’t apply it consistently it means nothing.
For me, my husband is my number one motivator! Sharing helps to keep you accountable and to keep focus.
Another thing that helps me to stay on track is to look at the numbers frequently. Revising my plan and making small changes to fit my current situation better, helps me keep up with the changes that happen in life.
I hope that the idea of designing a personalized financial plan has inspired you to start thinking about your financial future. All we can do right now to ensure a better future is to start working on it today!
I made a free downloadable PDF to help you put your financial plans into action.