Purposeful. Secure. Simple.
These are the three words you should keep in mind as you go through the process of creating a personal financial plan. These are the goals I want to keep in mind as I write about how to achieve financial strength.
Your plan should be purposeful
Before you start organizing your money, you need to understand what you are trying to achieve. It’s important to remember that money is merely a tool. A higher income or more savings are not ends in of themselves. Rather, good financial habits are important in that they give us more freedom to pursue the things in life that are truly important to us.
In other posts (Part 1; Part 2), I talk about how to determine what is actually important to you, and also to think about what is not important to you. A true understanding of your goals in life is absolutely necessary to creating a financial plan that works for you. These goals will undoubtedly change, and your plan will have to change with them. But without a purpose, your plan is empty and will likely not be followed.
Your plan should be secure
Without a doubt, the #1 goal of almost every parent is to make sure that your kids are provided for no matter what. With that in mind, your financial plan needs to be pursued with the mindset that it needs to provide security in good times and bad.
This will involve things like extra savings, buying insurance, cutting back on unnecessary spending, and using conservative investment expectations. This is the part of the plan where you have to sacrifice a little bit. It is not the fun part of your plan. But as a responsible parent who cares about your kids first and foremost, it needs to be a top priority.
One quick note: although building this security is not always fun, you should recognize that having security will also give you freedom. More savings will give you more leeway to pursue the career you truly want, or to scale back your career to spend more time with your family if that’s what you want. Having good insurance in places means you don’t necessarily have to save as much money, which frees it up for other purposes. Security adds a lot of positives to your life.
Your plan should be simple
It will take work to set up your plan. You will have to learn about some things that you don’t yet understand and handle tasks you have not handled before. This will be difficult at times. But the end state of your plan should be simple and low-maintenance, again with the purpose of freeing up your time for the things you truly value.
The first part of simplicity is that your plan should not involve anything you don’t understand. This isn’t to say that you won’t have to learn some things along the way, but anything you end up including in your plan should be included only because you have a clear understanding of its positive benefit for you. Please re-read that last sentence. You will get many recommendations from many sources along the way. Understand now that there is no good strategy that is so complex that you can’t understand it. One of the beautiful aspects of personal finance is that the best strategies are often the simplest. Keep that in mind and you’ll help yourself tremendously.
The second part of simplicity is that once in place, your plan shouldn’t require much regular maintenance. The goal here is not a lifetime of scrutinizing every financial detail. The goal is to get all the important stuff in place so that you can spend your time on other things. This will be an important theme as we move from topic to topic, and it’s also an important thing to keep in mind as you work through some of the difficult parts of setting up your plan. Not only is simplicity absolutely attainable, but it’s actually the hallmark of a strong financial plan.
Purposeful. Secure. Simple.
Three words. Keep them at the forefront at all times.
Photo courtesy of vishwaant