Why Financial Planning matters

In Financial Planning, as with anything you do, the fastest way is to make a straight line to the target and follow it. This will allow you to reach your goals and make good time.

And remember – there is no more time – you only have what is available here and now.

Building or updating a financial plan ensures, that you keep track of where you are, how things are going.
In case you are not meeting your target it is time to revisit your methods or goals.

And be brutally honest when doing your assessment! It may hurt, bring doubts and generally challenge you. But it is the only way to understand if you are making headway on your ambitions!

Tip #1 – Manage your Expenses

First and foremost your financial plan needs to take into account what your current status is. This means that you need to explore your current expenses and become realistic about your means.
Doing so will most likely also reveal things that would be beneficial to look into.

Be brutally honest with your self!

When diving into the expenses then always put interest in what matters! If your budget predominantly is littered with steep expenses, credit debt payments etc. Then this is where you need to focus. Probably 80% of your excessive spending is coming from 20% of your activities.

Build a list of expenses you want rid of, and follow-up on the progress every week or month on your bank statement.
This also brings you into a more spending conscious mode, where you have to reality check every so often.

Classic items to look for are

  • Recurring fees related to subscriptions such as Netflix, HBO and so forth.
  • High maintenance costs on cars, boats, rv’s and so on
  • Unnecessary consumption of luxury goods
  • Debt related expenses such as credit card interests, fees for not meeting payments etc.

Tip #2 – Set Targets for your investments

Recommended books on Investing

 

 

 

Having extra cash on your hand, you need to consider what your target is with your investment.

My approach is to set up a series of goals. My approach is to have goals reaching 1,  3 and five years ahead.
The goal reaching one year out, is an ambitious but realistic goal where I can follow up frequently on progress. The 3 and 5 year goals become more lofty and reflect the life style I would want at that point of time.

Short term goals

Dealing with short term goals it’s important they are constructed with S.M.A.R.T in mind. That means Specific, Measurable, Achievable, Relevant and Timely.

To achieve this I generally follow this template for my goals

Within a [time period] I want to [Goal], to be able to  [reason]…

I want to increase my positive cash flow per month with 150% within one year, so that I can work 5 hours less per week and spend more time with my family…

It is easy to set goals focusing on the amount, size or progress you want. However remember that the motivation lies in the reason – which is much more important than the specific gain in the goal.

Medium and Long term financial goals

When planning for the medium and long term, it’s time to get more lofty with your ambitions. This would be where you aim for financial freedom, or to reach significant milestones towards your dreams.

This means that a 3 and 5 year plan should stretch, to make you really work for it. And remember that the rule of compounding interest will help you on the way.



Tip #3 – Get out of debt

Many people, when ending their studies, have student loans, credit card debt and other types of short term debt. This is very common but also a challenge, as you basically start your life off in a deficit, before making it to the pulsating work life.

Most often the debt is also carrying a heavy interest, can make it really expensive to maintain and get rid off while blocking you from achieving what you want out of life.

Debt is the single biggest threat towards your financial goals.

Getting rid of your debt is not always straight forward and easy. However the best way to get going is to get an overview of expenses and income. Then you can set a fixed amount that goes to debt reduction each month.

Check out our debt reduction calculator

Tip #4 – Build Assets

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Rich Dad Poor Dad written by Robert Kiyosaki explains very well what it means to build assets.

One key thing many people don’t understand is, that you need to build assets. However many people still believe their house, car etc. are investments.

This is not true.

Think of it the following way;

Anything that consumes from your economy is a liability. You are liable for your car loan, your credit debt, you house mortgage and so on.

Every month they require, that you go to work and bring home what is need to maintain them.

Of course you need a place to live, a car to drive in and so fort. However most people today will get in too deep, and get enslaved by their liabilities.

Assets in stead are things that bring money home each month. you will want as many of them as possible, generating continuous positive cash flow.

Examples would be

  • Invest in stocks, funds etc.
    One option is to have stocks that provide a monthly dividend outcome to keep cash flowing, however reinvestment plans may also be a good opportunity.
  • Buy and rent out housing units
  • Enter the P2P lending space

Always consider the risk and don’t speculate.

If you dig into it, there are plenty of opportunities… just step up and get going.

 

Tip #5 – Invest in your self

You are the single biggest resource in your life.

Investing in your self, will help you reach your goals and develop you into the person you want to be.

Developing skills to a mastery level will allow you to earn more, while spending the same time. You can probably easily double your income per month in a year. Especially if you are doing an ordinary job, where skill is everything.

Find that course, training or seminar that will make a significant change in your income. Or join the class that will introduce new skills of benefit for you.

Another area for development is perhaps your self discipline and ability to be steadfast on your targets.

 Don’t wish things were easier, wish you were better

Take a thorough look at where you want to be, and develop the plan to bring your person along for the ride.

 

Do more of the things that will take you there – do less of the things that holds you back.

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