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The first step in personal financial planning, and the topic of this article, is choosing and following a course toward long-term financial goals. As with anything else in life, without financial goals and specific plans for meeting them, we stray along and leave our future to chance. As it is said : "If you fail to plan, you plan to fail"
The second step in personal financial planning, "Building a Financial Safety Net," will be discussed in my next post
The second step in personal financial planning, "Building a Financial Safety Net," will be discussed in my next post
FOUR SIMPLE STEPS FOR SETTING FINANCIAL GOALS
Step 1: Identify and write down your financial goals, whether they are saving to educate your kids, buying a new car, saving for a down payment on a house, going on vacation, your daughter's marriage or planning for retirement.
Step 2: Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals.
Step 3: Educate yourself! Read moneybhaiadvisor, or a book about investing, or surf the Internet's investing web sites. The stock market is not voodoo. With a little effort you can learn enough to make educated decisions that will increase your net worth many times over. Then identify small, measurable steps you can take to achieve these goals, and put this action plan to work.
Step 4: Evaluate your progress. Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least semi-annually, to determine if your program is working. If you're not making satisfactory progress on a particular goal, re-evaluate your approach and make changes as necessary.
DO IT NOW!
There are no hard and fast rules for implementing a financial plan. The important thing is to do SOMETHING, and to start NOW.
Read my next post on "Building a Financial Safety Net" to prevent financial disasters caused by catastrophic illnesses or other personal tragedies.
Step 1: Identify and write down your financial goals, whether they are saving to educate your kids, buying a new car, saving for a down payment on a house, going on vacation, your daughter's marriage or planning for retirement.
Step 2: Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals.
Step 3: Educate yourself! Read moneybhaiadvisor, or a book about investing, or surf the Internet's investing web sites. The stock market is not voodoo. With a little effort you can learn enough to make educated decisions that will increase your net worth many times over. Then identify small, measurable steps you can take to achieve these goals, and put this action plan to work.
Step 4: Evaluate your progress. Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least semi-annually, to determine if your program is working. If you're not making satisfactory progress on a particular goal, re-evaluate your approach and make changes as necessary.
DO IT NOW!
There are no hard and fast rules for implementing a financial plan. The important thing is to do SOMETHING, and to start NOW.
Read my next post on "Building a Financial Safety Net" to prevent financial disasters caused by catastrophic illnesses or other personal tragedies.
Every financial advisor will tell you that to succeed, you must set goals.
But that just doesn't tell you enough. You see, there is an art to setting goals that actually work.
It isn't enough to just say, "I will get out of debt." While that is a good idea, it isn't a goal until you do a little work on it.
First, set yourself a time limit on your goal. If you have no date to work towards, then you will just be wasting your sweet time. You have to set a date to do this. For example, you can plan to pay off Rs. 100,000 debt in the next five years. You automatically know that you will at least have to find Rs.2,0000 a year to go towards that debt, not counting the interest.
This step is trickier than it sounds. You have to be reasonable when you set your goal. If not, you will just quit. That is why most budgets fail. They aren't reasonable. Set a date that will actually work for you.
If you miss your deadline, simply readjust your goal. You've made progress on it, so all is not lost. Just set another deadline and work towards it. Remember, life doesn't always work according to our plans. That is why plans and goals change over time.
You have to not only decide to get out of debt, but you must define what that really means. Do you really know what it will take to get out of debt? You need to sit down and write down your goal. Write down the time limit you have given to achieve your goal. Now define that goal.
I find that the definition comes in the actions that must be taken to achieve the goal. These small steps make a goal easier to handle. It is hard to get out of debt. But it is much easier to call your credit card and request a lower interest rate.
But that just doesn't tell you enough. You see, there is an art to setting goals that actually work.
It isn't enough to just say, "I will get out of debt." While that is a good idea, it isn't a goal until you do a little work on it.
First, set yourself a time limit on your goal. If you have no date to work towards, then you will just be wasting your sweet time. You have to set a date to do this. For example, you can plan to pay off Rs. 100,000 debt in the next five years. You automatically know that you will at least have to find Rs.2,0000 a year to go towards that debt, not counting the interest.
This step is trickier than it sounds. You have to be reasonable when you set your goal. If not, you will just quit. That is why most budgets fail. They aren't reasonable. Set a date that will actually work for you.
If you miss your deadline, simply readjust your goal. You've made progress on it, so all is not lost. Just set another deadline and work towards it. Remember, life doesn't always work according to our plans. That is why plans and goals change over time.
You have to not only decide to get out of debt, but you must define what that really means. Do you really know what it will take to get out of debt? You need to sit down and write down your goal. Write down the time limit you have given to achieve your goal. Now define that goal.
I find that the definition comes in the actions that must be taken to achieve the goal. These small steps make a goal easier to handle. It is hard to get out of debt. But it is much easier to call your credit card and request a lower interest rate.
Now take a pad of sticky notes and write your goal on several of them. Put them on the front door. Put them in your wallet. Put them in your checkbook. Put them on your computer. Put them on your bathroom mirror. But more than that, each time you think about doing something that threatens your goal, you have to think about what achieving your goal will really mean. You might really want a new car, but when you think about it, retiring early means much more.
When you focus on the benefits of reaching your goal, the sacrifice doesn't seem to be so important. It is easy to live a frugal life now if you know it means a completely debt free life in ten years and early retirement in style. It is easy to not eat out once a week if you know it will help you get to eat a meal in Paris in a few years.
When you focus on the benefits of reaching your goal, the sacrifice doesn't seem to be so important. It is easy to live a frugal life now if you know it means a completely debt free life in ten years and early retirement in style. It is easy to not eat out once a week if you know it will help you get to eat a meal in Paris in a few years.
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