5 Tips To Following Your Financial Plan
Making a financial plan is about a lot more than juggling annual returns, budgets, and anticipated income and expenses. It is a detailed snapshot of your cash flow as well as your goals, and what you are willing to compromise to achieve them.
Here are five tips to help you create and maintain your financial plan:
Avoid unrealistic expectations. Don’t think you can increase the value of your investments more quickly by taking a chance on a high-flyer or “get-rich-quick” scheme.
Don’t forget your goals. A financial plan enables you to measure your actual success against your planned returns. Although the two may not be identical, they should move in tandem. Use specific numbers so that the exercise is not subjective. “It seems to be OK,” is not an ideal answer to the question, “Is your financial plan on track?”
Financial planning isn’t only for the wealthy. Though a well-designed plan is essential for people with means, it’s just as important for a family with a lower income. A concrete plan can often serve as a guideline toward greater financial freedom and opportunity.
Don’t wait until a crisis arises before beginning your financial plan. If you prepare in advance for unfortunate eventualities, you will have certain solutions already in place to help you deal with the situation.
Remember that working with a professional advisor does not mean giving away control of your assets. An advisor is there to help you interpret your own financial situation, needs, and aspirations. He will help serve as your coach and guide as you move toward financial independence. He will assist you in seeing different sides of the issues and present you with varying choices, but ultimately you are the one to make the decisions.
The most dangerous pitfall to financial planning is not having a plan at all. As it’s often said, “If you fail to plan, you’re planning to fail.”
Douglas Goldstein, CFP, is an investment advisor and author of Rich As A King: How the Wisdom of Chess Can ...
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In my experience, when I don't stick to a financial plan it is usually due to one of two things: greed and unexpected expenses. The first would fall under the unrealistic expectations category you mentioned. I tend to abandon my plan when I see a "sure thing" out of greed; and it usually doesn't end well. As for the latter, that's usually when an unforeseen emergency happens that costs me a great deal of money. However, any decent plan would incorporate emergency funds; it's just that sometimes the emergency can prove to be more costly than you had allocated for.
You are right, every decent plan would and should incorporate emergency funds. Actually the same study showed only 35% of people have a plan to save for emergencies. And only two-thirds have a plan to meet any of six savings goal, such as for emergencies, retirement, a child’s education or a down payment on a house.
There are good words of advice indeed. But, People who get a plan often don’t follow it. One estimate suggests that just 20 per cent of people follow a financial plan received from a planner or investment adviser. Okay, people are busy and distracted. They’re also using a lot of their household cash flow for borrowing, rather than saving. But if you pay serious money to a professional to map out your financial future, why wouldn’t you follow the advice?
Was looking for something a bit more indepth, but though short, these are good words of advice.