If you haven’t already read my introduction to this series, please go back & read that first before reading on… it’ll give you a bit of a heads up on where I’m going with this & why…
Just a disclaimer before I go on –
This is my process… it’s not financial advice… I’m not a professional. I’m not selling anything. I don’t claim it as perfect. It’s still a work in progress! These are simply my own thoughts, my own process, documented for the possibility that it might be of help to someone…
… I’m just an ordinary girl who has learnt the hard way the importance of having an up-to-date financial plan, who in light of current global conditions feels the importance of updating my risk management plan, and who has a tug on her heart to help others in this area too….
….So take it as you will…
Neither my husband or I were ever really educated growing up on the practicalities of handling money. As a result at the time we got married we were both terrible at managing it. We made some pretty typical but catastrophic decisions in our early years together!! As a result of these poor decisions our money ended up managing us! We will be paying the consequences of that for years to come and that is why I am really passionate about helping others gain the tools to be wise with their money – so that they don’t repeat our mistakes!!
The first part of my financial process is reviewing your relationship with money: There are a few questions I first ask myself:
… Love? … Hate? … Acceptance? ….
… Fantastic?…. Ok? …. Leaves a lot to be desired?…. Dire straights? ….
… Thrifty? … Planned?… Cautious?… Spend happy?…. Totally out of control need to check your credit card into rehab?…
If yes…. Great! Is it working for you? …. Do you review it regularly?… Could it be improved?…
If no… I’d recommend that you read on
…. Do you swing from the rooftops like a monkey, with insane amounts of excitement – yelling out “YEEESSSS Budget time”!!!!!!? (if so then I’m a little intimidated about you reading this, you are probably far more wise than me, so could you please do me a favour and stop right now?! Thanks heaps!);
…. Do you think “aw yip, I suppose we should think about that…”?;
…. Do you think “ew yuck – too much like hard work? and tuck that Budget thought away to the bottom of the “too hard” basket?;
…. Or are you like me and get a sinking sick feeling of dread at the prospect, knowing that if you did a “budget” it would reveal you didn’t have enough income to cover your day to day expenses let alone your wants, would depress you, so you wonder why bother anyway?!
At least I used to be like the last one… I’m a little better these days – but I still don’t like the word much! I much prefer the term “Financial Plan”… doesn’t it sound just that bit more positive?
A Financial Plan is not just about a day to day budget. It is an all rounded view of where you want head financially. It records everything from your day to day priorities, to your pipe dreams, and it helps work out a way to connect the dots between the two… In my humble opinion, without a Financial Plan – you will struggle to reach your goals… so it’s a pretty crucial first step to securing your financial future!
|Good Financial Plan =|
I’m not suggesting that you need a dedicated 50 page, high tech, pretty bound document… you can do it that way if you are so inclined… but I believe that a good financial plan can be achieved very simply!
There are several different elements to it. But really it doesn’t need to be intimidating! In my opinion it’s best if it can be all in one sitting – but it doesn’t have to if that’s not possible.
- Prioritising your $$$ & setting goals
- Working out your plan
- Assessing your risk management
- Setting up accountability & a regular review process
Today I’m planning on tackling the first…
1. Prioritising your $$$ & setting your goals
Firstly, before you even start, you need to make sure you have time to fully concentrate on it. Don’t do it when you feel out of sorts, or rushed. You need to be relaxed because it needs to be a positive process. That is vital to it’s success. Secondly if you have a partner you need to sit down and do it together. That is even more vital!!
A time when you can relax
Your partner (if applicable)
A blank piece of A4 piece of paper
A couple of pencils & an eraser
To make a start – take your A4 piece of paper and draw 2 columns… Head up the left column “Priorities for now” and head up the right hand column “Priorities for later”.
Priorities for now are the things you are already doing as part of your existing lifestyle. They include things like food, power, phone etc… – all your fixed costs/bills. But also don’t forget to list all the extras that you do now which you want to continue to do. For example gym memberships, pay TV, eating out, holidays, school fees, hobbies, kids expenses etc… be comprehensive… every expense that you have now, which is ongoing, and which you plan to continue into the future needs to be written down into this column. Make sure that you get everything! It is helpful use your bank statements to help you if you have them handy.
** Edited to add – this is just a list – you don’t need to put any figures in at this stage…
Once you have finished that list you can work on your Priorities for later. This is the fun column! This column defines your goals… Short term, mid term, long term, pipe dreams – stick them all down on this side. Include all of your financial goals – whether they be material wants, planning for your future such as retirement/kids education, risk management… everything!
The key to this activity is to be specific… It’s no good simply putting “buy a new car” or “do up the kitchen”. Not just what, but write down things like when, how much, how… if it’s relevant then why? etc…
For example we would like to go on a holiday for our 10th wedding anniversary next year. So I would write – “anniversary holiday” then underneath I would put the specifics (these are just examples – we haven’t actually done ours yet) – when – January 2012; where to – Gold Coast; how much – $4,000; how long – 7 days minimum. Etc… etc…
You are now finished step 1 of your financial plan… Go you! Easy huh!
Put this aside for later… it will now define where you go with Part 2 – working out your plan.
Further resources I like that you may find useful:
http://www.sorted.org.nz/home – great independant money guide – you might want to check out their section on goal setting.
Wealth Riches & Money – God’s Biblical Principles of Finance by Craig Hill and Earl Pitts.
When the game is over it all goes back in the box by John Ortberg
Hope it was some help! I’d love to know if you give it a go!
Stay tuned for part 2….
*1 If you’re interested you can go take the $$ personality profile test over at sorted.org.nz