Getting started is always the hardest part, whether you’re beginning a home improvement project, sitting down to crack open a new book, or creating a financial plan. However, the repercussions of waiting to make a financial plan — or worse, not making one at all — can last a lifetime. To help you put your best foot forward, let’s examine each phase of the financial planning process.
1) No Plan
This is often a starting point for individuals and couples beginning to earn income after finishing school or professional training. With personal finance lessons all but absent from most formal education, it’s easy to start your professional career here. You just don’t want to stay at this phase for very long, because the longer you stay, the harder it is to leave.
How you know you’re here
All of your money sits in a checking or savings account. You’re not really sure where your funds are going and your next paycheck can’t come soon enough. You’re not planning with the end in mind.
How to fix it
Set small financial goals and achieve them. For example, open a money market account (separate from your checking or savings accounts) that you contribute to regularly. Pay off a small loan or start an emergency fund — and only use it for emergencies.
2) Bad Plan
A bad financial plan sounds worse than it really is. Because, if you have a bad financial plan, it means that you do have a plan — it’s just not working as well as it could. The most important part of a bad plan is that you’ve gotten started. Now you only need to adjust your plan.
How you know you’re here
You’re consciously examining your finances with big goals in mind, such as retirement, or buying a house, but you’re not navigating yourself to the goals successfully. Typically there is no amount of income that fixes a bad plan.
How to fix it
Drill down deeper into your finances. Assess annual, monthly, or even weekly financial goals to determine if you’re reaching them, or why you aren’t. Redefine your short-term goals to enable the success of your long-term goals.
3) Good Plan
A good financial plan is not a perfect financial plan. A good plan runs itself, but still requires maintenance. You are on the path to financial freedom, which is less about how much money you earn and more about how you use it. You also didn’t arrive at your good plan without a lot of practice and some good advice.
How you know you’re here
Life’s little financial bumps in the road are easily absorbed and you quickly get back on track with your short-term and long-term goals. All people in the plan are content. You’ve got multiple accounts that each have a separate purpose, making a broad and sturdy financial foundation.
How to fix it
If it isn’t broken, don’t fix it. Of course, you’ll always need to refine your plan as major life changes occur or your short-term and long-term goals shift.
Want to learn where to get started making a plan or how to modify a current one? Drop us a line at getstarted@arkfi.com.
photo courtesy of Doran
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