Wednesday, August 15, 2018
Your Own 1-Page Financial Plan
Financial Planning can be very complex and there is a reason for it. Financial advisors try to make it confusing so we can sound smart. Here is a little heads-up about financial planning: It isn’t that complex! I absolutely love 1-Pagers. Take a whole booklet of jargon and filler and condense it on to one page. There is no reason why your financial plan should not be able to fit on one page. Today, I am going to show you how to create your own 1-Page financial plan. This is a great way to get your foot in the door with setting your financial goals and dreams. Let’s get started!
Goals, goals, goals
You should see the look of confusion I see when I ask some of my clients what their future goals are. There are many people out there who have no idea what they want to be doing in a year, two years, let alone twenty years. I am going to let you in on a little secret about goals, it’s okay to not have any right now. Life is so up and down that having a concrete set of goals can be difficult. I look at goals like I look at dating: Sometimes you don’t know what you want, but you sure as hell know what you don’t want. Start with that. You don’t like living paycheque to paycheque. That’s a goal! You hate having a student loan or credit card debt. That’s a goal! You hate that your friends go on all these amazing vacations and you can’t afford to go. There’s another goal! An easy way to get started on goal setting is to pick out 1 thing about your financial life that you don’t like and focus on it. “I do not like that if I get sick I have no safety net to fall back on.” Boom, an emergency fund is a goal! Start with one goal because putting in too many can lead you to be overwhelmed, and that can lead to frustration.
Here is my 1, most important, financial goal/concern
I want my emergency fund to be larger, 1 year’s living/business expenses
Take a moment to write down your 1, most pressing, financial goal or concern.
Almost every financial goal has a spending or savings component to it. You want to go on vacations annually and they cost money. You must save the money, so you can spend the money. I want to go a little deeper though. For your 1-Page Financial Plan, pick out 1 spending decision that you routinely make and 1 saving decision that you DON’T routinely make. For example, you realize that you dine out far too much, so you want to cut that back. You also realize that you are not saving enough. Analyze how many times a week/month you dine out. Take the average amount you spend on that night out and put it into a savings account. By simply cutting back on one night out per week/month you have accomplished 2 goals. Ah but wait a minute, you have actually accomplished 3 goals. Remember how I brought up how my goal was to increase my emergency fund, and how yours might be to take an annual vacation. Having extra savings allows you to do either of those. Let’s look at our 1-Page Financial Plan spending/saving component:
I need to go out less and save more, so I will cut back on one night of going out and put it into savings
Take a moment to write down one spending goal you have, and one savings goal you have. Make sure the savings goal is for something fun because you will be cutting back something fun with the spending goal.
Think big, sort of
It is hard to conceptualize something as far away as retirement when you are younger. Heck, it is even hard to think about when you are near it for some older people. The problem with long-term saving is that the numbers on a piece of paper don’t mean much. I can tell you that you will need 1 million saved up for retirement, but the truth is that I don’t know if that is the actual number. I have all the fanciest calculators and tools in the world, but I can’t predict one simple variable: Life is unpredictable. We don’t know what will happen tomorrow, let alone 30 years from now. All we can do is make the best choices right now with the information we have. I will break retirement saving down into one simple concept for those of us who are far away from retirement. You must save for retirement. Sounds confusing right? It’s not, believe me. Take a number you will be comfortable saving every month and treat it like a bill. What happens when you pay a bill? You live for another month. Think of your retirement the same way. Every time you make a retirement savings contribution, you now live another month, later in life. Take that amount you save, and every year increase it 10%. $100 a month this year, $110 a month next year. When you do this, you will be amazed at the results. Check out our big picture portion of the 1-Page Financial Plan.
I need to save for the future, so I will contribute to a retirement savings account, starting small and working my way up.
Take a moment to think about the obstacles, either financial or mental, to you saving long-term. Write down what you can do to lessen those obstacles, so you can save long-term. Commit to an amount you will save, or work towards saving for that goal.
I know I talk about it a lot, but there is a reason for it. For my clients, I would rather them commit first to a financial protection plan first, over a wealth accumulation plan. The reason is simple: While you are accumulating wealth any number of things can knock you off course. The game of retiring wealthy is a long-term game. The pain of injury, illness or death can and usually is sudden. I think this final part of your 1-Page Financial Plan should be dedicated to the ones you love, including yourself. You love your family and want them to be able to stay in the family home, so you commit to life insurance to do so. You love being independent, so you commit to income protection in case you get hurt or sick. Insurance is all about love, and money of course. You protect what you love, and your money/assets, with a smaller amount of money on a regular basis. Check out the protection portion of our 1-Page Financial Plan.
I need $2500 a month for my basic existence, so I will commit a portion of my income to obtain this coverage to continue paying living expenses should anything happen to me.
Take a minute to write down the people that matter most to you, including yourself, and think about what might get in the way of you achieving goals with them.
Put it all together
Let’s look at our completed 1-Page Financial Plan
- I want my emergency fund to be larger, 1 year’s living/business expenses, so I will commit to saving towards that goal
- I also want to spend less money on evenings out because I know they are hurting my overall financial picture. This includes not saving enough, which going out less will help me with. I will cut back on one night out and save that amount on a monthly basis.
- I know I need to save for the long-term, so I have come up with a comfortable number I can start with, to save every month. I will increase this number by 10% on an annual basis.
- I know protected myself and my loved ones is important, so I will commit a portion of money every month to that task.
Isn’t that an amazing thing? With 4 simple points, we covered short-term savings goals, debt, emergency funds, retirement planning, estate planning, income protection, and many other financial goals. It isn’t hard to start at all. One thing that is true is that this 1-Page plan will change over time. You will add things and delete others. Update your plan on an annual basis. You can literally do this in 15 minutes and you will get more insight into your financial future than some of the most in-depth financial planning tools can provide you. 1-Page to financial freedom. I’m with it!
“Life is really simple, but we insist on making it complicated.” – Confucius
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