Saving Money Tip #146 - Have A Financial Plan – Part 1. Everyone can benefit from having a plan – whether it be a plan on how to lose weight, how to get a job, how to raise your children, or how to get from your house to a tropical vacation spot. Planning is what guides us to where we want to go. Without a plan, we may still get there. But it will probably take longer, not be as straightforward, and have more bumps along the way. That’s not to say that things always go according to plan. In fact that’s not to say that things ever go according to plan, but for the most part a plan guides us on our path more directly and more precisely.
Having a financial plan is no different than having a plan for other aspects of your life. From the time you graduate high school until you are ready to retire, you should have a financial plan made up to guide your financial life. Money doesn’t just magically appear, expenses aren’t neatly categorized and paid for, and savings don’t just happen unless you have a plan for your money – how you are going to make it, how you are going to spend it, and what you are going to save it for.
So what is a financial plan? It’s a guide outlining how much money you expect to make, what you think you will spend it on, and how much you need to save of it for times when you are not making any, along with approximate timelines. A plan estimates how you expect your financial life to be down the road – in the future, near and far. It might start out very general after high school and may not be written down, but should become more specific and formal once you start working. They will be revised and updated throughout your life as needs change, circumstances come up, and life events happen. As I said, it won’t always, or even ever, go according to plan. But it will guide you along the way and you can adapt it as circumstances change. Even the act of writing one can get you on the right track financially.
In Real Life (IRL) – I won’t say that I have always had a formal financial plan. I haven't. In college, my parents covered all of my big expenses, and I had summer and winter jobs to pay for some extras. So I did not have any type of financial plan in college, as there was no need for one. (However, for people who are putting themselves through school and undertaking debt, I think it is a good time to start one.) Once I graduated school and got a job, I worked out a general budget, figuring out how much I had to pay toward rent, utilities, food, and commuting. I sent a portion away each month towards savings, but it wasn’t toward any discrete goals. I had hazy ideas of acquiring a house in the future, but I didn’t have defined, concrete goals or anything that I would call a formal financial plan.
After a year of working, when I was enlightened about the benefits of saving early for retirement, my financial goals started to fall into place. Suddenly, I had more competing needs for the money I was earning. And I began to write down big goals of how I wanted to spend my income. This was a general financial plan. I estimated how much I would be making in the coming years, and how much I thought I could save each year.
It wasn’t until I was married, however, when I made a formal financial plan, and that is because my brother, who is a certified financial planner, offered to help me and my husband develop one. That was about 7 or 8 years ago. And while things haven’t gone exactly according to plan; it has been a good guide for our family. Since then we have made revisions to it and constantly update our plan based on where we are and where we hope to be in the short-term and the long-run. In Part 2 of this series, I will go into more details of what to include in a financial plan and what ours looks like.
Having a financial plan is no different than having a plan for other aspects of your life. From the time you graduate high school until you are ready to retire, you should have a financial plan made up to guide your financial life. Money doesn’t just magically appear, expenses aren’t neatly categorized and paid for, and savings don’t just happen unless you have a plan for your money – how you are going to make it, how you are going to spend it, and what you are going to save it for.
So what is a financial plan? It’s a guide outlining how much money you expect to make, what you think you will spend it on, and how much you need to save of it for times when you are not making any, along with approximate timelines. A plan estimates how you expect your financial life to be down the road – in the future, near and far. It might start out very general after high school and may not be written down, but should become more specific and formal once you start working. They will be revised and updated throughout your life as needs change, circumstances come up, and life events happen. As I said, it won’t always, or even ever, go according to plan. But it will guide you along the way and you can adapt it as circumstances change. Even the act of writing one can get you on the right track financially.
In Real Life (IRL) – I won’t say that I have always had a formal financial plan. I haven't. In college, my parents covered all of my big expenses, and I had summer and winter jobs to pay for some extras. So I did not have any type of financial plan in college, as there was no need for one. (However, for people who are putting themselves through school and undertaking debt, I think it is a good time to start one.) Once I graduated school and got a job, I worked out a general budget, figuring out how much I had to pay toward rent, utilities, food, and commuting. I sent a portion away each month towards savings, but it wasn’t toward any discrete goals. I had hazy ideas of acquiring a house in the future, but I didn’t have defined, concrete goals or anything that I would call a formal financial plan.
After a year of working, when I was enlightened about the benefits of saving early for retirement, my financial goals started to fall into place. Suddenly, I had more competing needs for the money I was earning. And I began to write down big goals of how I wanted to spend my income. This was a general financial plan. I estimated how much I would be making in the coming years, and how much I thought I could save each year.
It wasn’t until I was married, however, when I made a formal financial plan, and that is because my brother, who is a certified financial planner, offered to help me and my husband develop one. That was about 7 or 8 years ago. And while things haven’t gone exactly according to plan; it has been a good guide for our family. Since then we have made revisions to it and constantly update our plan based on where we are and where we hope to be in the short-term and the long-run. In Part 2 of this series, I will go into more details of what to include in a financial plan and what ours looks like.
No comments:
Post a Comment