“If you were to show me your current financial plan, would I get so excited by it that I would go across the country and lecture on it? If the answer is no, then here’s my question: ‘Why not?’ Why wouldn’t you have a superior financial plan that is taking you to the places you want to go?” — Jim Rohn
Many of us have never been taught how to develop a financial plan, and we walk through life guessing what is the next financial move that we should make. It’s possibly the main reason why people are live paycheck to paycheck.
It took me a year or two of research and testing to figure out what I wanted in my life. One thing I recommend is the worksheet from Missouri State University which is provided in the link. The worksheet is a good start point.
1. Determine your current financial situation
One of my mentors told me that your net worth is your adult report card. We lose sight of how we are doing financially, and one way is to measure how we are doing is by looking at your net worth. My financial plan started out with me being $66,500 in debt in 2007 and no savings. I started to track every purchase, and it helped me to clarify where I wanted to go in the future.
Begin with how much you have saved up (in savings accounts, Roth IRAs, and other investments), and then subtract your liabilities (all of your debt from credit cards and loans). Begin tracking your expenses and organize your financial records.
2. Develop your financial goals
I wanted to get out of it the fastest way possible and not lose any of the activities that made me happy. I asked the following questions. It helped me find out where I wanted to be in the future.
- What do you want for the future?
- What do you want to achieve?
- Do you want to save a certain amount of money a month?
- Where do you want to travel?
- What are your financial values?
3. Identify alternative courses of action
Seeing that my purchasing behavior and spending got me into trouble, I knew that the behavior was the first thing to change. I thought to myself “there’s nothing wrong with making mistakes with money. Learn from the experience and move forward.”
Remind yourself that there is no reason to beat yourself up over the situation that you’re currently in. Your circumstances can change. It’s a learning process and it’s alright if you don’t know everything now.
4. Evaluate alternatives
Because the $66,500 price tag was looming over my head, there needed to be a major decision to be made. How much could I put toward paying down the debt. After running numbers in my budget, I decided to put $1,250 a month to the debt and that was the first thing to come out.
Of course I had to give up a few luxuries like being able to eat out often. As I learned and searched for alternatives, I gained respect for money, and relearning delayed gratification. The choices you make now get will get you closer to your goals in the future.
Weigh the costs of the choices that you make. For instance, Can I make steady payments of $650 to my debt per month? What better choices can I make with my money so I can get to the $650 goal
5. Create and implement your financial action plan
After I decided to take action, all the stress and emotion was taken out of the decision making process. It ended up becoming a game of how could I make better decisions to pay the debt down faster.
Once you have made a few decisions on what you want, and the direction you want to go, it’s time to make that plan work. This is the testing phase to see if you are able to work with your plan, and if it will work for you. The hardest part of gathering all the information and planning is complete.It will be hard at first, and the process will be worth it because you are beginning to change habits that you didn’t know you had before. You are on the road to becoming better with money.
6. Review and revise the financial plan
Your first plan isn’t going to be your last. As you move along in life, your financial situation is going to change. My financial situation changed many times over the years. Yours will too. Trust in the process, adjust when you have to, and restart from the beginning when you have to.
For more detail go to wikiHow to get deeper into the planning. Let me know if this helped you, or if you have any suggestions please let me know. See you again soon.
If you go to work on your goals, your goals will go to work on you. If you go to work on your plan, your plan will go to work on you. Whatever good things we build end up building us. – Jim Rohn