Most people assume financial planning is only for wealthy people, but I have a revelation to share with you: Many people are wealthy simply because they had a plan to become wealthy. If you don’t have a plan for becoming wealthy, the odds are that you probably won’t.
Many people are not happy with their current financial situation, or at least are not satisfied. If that is the case, then you should probably be doing something different than what has gotten you into your current financial situation. Albert Einstein defined insanity as “doing the same thing over and over and expecting to get a different result”, so if you continue to make the same financial decisions, you should expect to end up in the same financial situation.
I counsel people on a daily basis and people deep in debt, facing foreclosure, with terrible credit are by far the most frequent individuals seeking financial counseling. A 2013 Gallup poll showed that only 30% of those surveyed had any kind of financial plan, so it is no wonder there are so many people in bad financial situations.
What is a financial plan?
A financial plan is like a GPS for your finances. When you turn on a GPS, the first thing it does is determine your current location. You then enter your destination and the GPS maps out the most efficient way for you to get there. A financial plan should do exactly the same thing for you.
- Current Location: First you must determine your current financial position (Net Worth). You do this by listing everything you own (Assets) and everything you owe (Liabilities). The difference between them is your Net Worth.
- Destination: Where you’d like to go in financial planning terms are your goals. Goals are the things you would like to achieve (home ownership, retirement, college savings, financial security, wealth), are specific to you and have nothing to do with money.
- Your goals should be SMART goals:
- Specific – define each goal as clearly as possible
- Measurable – you must be able to easily measure your progress in achieving each goal
- Attainable – your goal should be something that can realistically be achieved based on your current or projected financial resources
- Results-oriented – each goal should get you closer to your overall desired financial destination
- Time-sensitive – each goal should had a projected completion date (no open-ended goals)
- Goals have nothing to do with money. In defining these smart goals, you should not even think about the money aspect until you have the goal completed. Once each goal is completed, then you can assign a dollar value to the goal. For example, if your goal is to buy a home in 3 years, you can then assign a dollar value to that goal to allow you to measure your progress toward achieving it.
- Your goals should be SMART goals:
- Like any good GPS, your financial plan should map out the most efficient route to reach your goals, as well as being able to adjust your route when your circumstances change. It should take into consideration the following areas:
- Retirement planning
- College savings
- Insurance planning
- Debt management
- Investment management
Finally, to wrap up the financial planning process, you should have a summary document, which is really the most important document for the safety of your financial health. That document is called a BUDGET! If your financial plan is your GPS, your budget should be your guardrails to keep you on the road and prevent you from going off of a financial cliff. To explore each of these areas in further detail, contact me at (773)382-1700 or online at www.practicalfinancialsolutions.com.
Greg Teague, MBA is the owner of Practical Financial Solutions. In addition to his undergraduate degree and MBA in Accounting and Finance, Greg holds licenses in multiple securities and categories of insurance. He has been CFO of Thrush Development, SunTimes 1999 Real Estate Developer of the Year and minority-owned TAG Properties.
In more than 25 years of accounting and financial experience, Greg has worked with individuals and different types of businesses in financial and tax planning and small business accounting systems. He also offers seminars through churches and organizations to help families succeed financially.