Planning your financial future should be done carefully, taking into account your personal circumstances.
Build your financial planning strategy on various factors, such as your own levels of investment risk tolerance and spending habits.
There’s a world of difference between a good financial plan and a mediocre plan. While you mCredit: Image: Andy Newson / FreeDigitalPhotos.netay think that having a mediocre financial plan is better than having nothing at all, that’s not true. If your plan can’t help you to achieve your goals, it is of little value to you. A good financial plan is customized, taking into consideration your individual needs and hopes for the future.
While an average plan can be thrown together quickly, a solid financial program takes time to build. It needs a solid foundation (an understanding of your spending habits and of your current and potential assets) in order to help you to prepare for a stable and comfortable future. A good financial plan reflects an entire financial experience: past, present, and future assets, debts, and expected changes (i.e., large upcoming expenses or an anticipated inheritance).
There are many steps in formulating a financial plan. Four of the most important are:
- Realism - If a person's salary is in the $50,000 range, it’s unrealistic to establish a plan with the goal of saving $10 million. Numbers and goals must add up and make sense.
- Flexibility - Plans should be “user friendly.” If they are too rigid, and restrict or severely alter one's lifestyle, in essence they aren’t workable and are useless.
- Resilience - A good financial plan lasts both through hard times and good times. It’s not a New Year’s resolution that can easily be broken.
- Simplicity – A financial plan is the map one uses to help realize his dreams. It should provide guidelines on how to make financial decisions, detail the actions to be taken, and contain benchmarks to measure progress.
A financial plan paves the path to your future. Since it is impossible to predict what will happen to you or to the markets, a solid financial plan helps prepare you to handle the uncertainties of what lies ahead. By using these four concepts as a starting point, a well-designed financial plan can be established to help you deal with the many possibilities that may come your way.
You may also find it helpful to use the services of a financial planner. For more information, read my article, “Three Reasons to Choose a CFP® to Guide You Through The Financial Planning Process.”
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.