How to write a personal financial plan

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Is Personal Financial Planning a pain?

Have you thought about how to do your Personal Financial Plan but keep bouncing back? Join us as we take you through the process of creating your own financial plan, based on our personal financial planning example.

The Outset

Before setting new goals and creating a plan, we need to establish your outset.

Getting the starting point is done by reviewing you income and expenses throughout the last financial year. This means you will need to collect bank statements, notes on paychecks, dividend notes etc.

The reason is, achieving a quality financial plan requires the fundamentals are in place.

On top of what you did earn and spend last year, you need to do a forecast of what may come up during the coming year. Perhaps you are planning a cruise, getting married or perhaps you old beater of a car needs replacement. These future perspectives allows that any large expenses are scheduled and taken care of before they occur.
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Example Financial Plan

We have put together an example of a financial overview for a whole year.
In the overview you see a grouping of income based on your earned income and from other sources like investments and real estate. All income is after tax, since we will be comparing with expenses.

You will also see an overview of the expenses incurred monthly. Most likely you have all of them and perhaps more.

If you have any big events or expenses coming up, you should enter those as annualized payments. The reason is that you want to be able to save across months, so you don’t end up taking a bit hit when the cost occurs.
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Reading the Financial Plan

When you are done listing all expenses and incomes in the spreadsheet, the sheet will predict the end-result for the coming year. You will also be able to see the monthly cash flow.
Remember Cash Flow indicates whether you spend more or less than you earn, and should always be positive…
If it is not then you are heading straight for the abyss and need to take immediate action.

In the provided financial plan example income and expenses are set up to balance. This is done by setting the level of investment and savings we have room for, based on predicted expenses.

As a ground rule you always want to save 10-20% of you income for reinvesting. This is how you snowball your cash flow and become wealthy.
In the example we also assume you have a mortgage, even though you are investing. This is because a mortgage is often long term and not easy to pay off short term, unless you really prioritize it.
If you Mortgage is exceptionally high and blocking your investments, then most likely you should downsize and make head-room for investments.

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Understanding Cash Flow

Those two numbers subtracted from each other in the end shows your Cash Flow.

Your cashflow should always be positive.
If not, then you are heading straight for the abyss and need to take immediate action.

Investment Levels

In the presented spreadsheet, it just about balances. However note that the investments being made are making up for the 20% which are to be invested, once you are free of debt bar Mortgages. If you Mortgage is exceptionally high and blocking your investments, then most likely you should downsize and make head-room for investments.
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The Financial Plan

Now we have the budget under control and understand how all expenses and income is generated, it is time to prepare the plan.
Our aim is to set the goal for the next year allowing us to aim for more.

Some of the axis we may want to plan towards are

  • Retirement savings maxing those out
  • Buying Real Estate or REITs
  • Buying Stocks & Bonds preferably in Index or Mutual funds

This is entirely up to you to choose between the many options out there. Just remember short term investing is regarded more as speculative and for investments you need to aim for the long run.

One source worth consulting for advice on how to proceed is Robert Kiyosaki’s Rich Dad, Poor Dad book.
He divides people into 4 types: Employee, Self-Employed, Business Owner and Investors. The move you want to make is going from being an employee towards being a business or investor.
The core underline is that Employees and Self-Employed people work for money, whereas Business Owners and Investors have money work for them.
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Following up

The last crucial part after doing all the work is to follow up continuously. This is the part where many start to struggle and experience the real challenge.

This is why you need to download a copy of our Financial Planner Wheel. This allows you to quickly build a schedule for when you do your follow-up activities.

PlansForAnything Financial Wheel

PlansForAnything Financial Wheel

 How to use the Financial Planner Wheel

Our recommendation is, that you print it and find a marker.

First you decide when you Year, half year and perhaps Quarterly follow up will be. You mark those in the Financial wheel and write the review activities you intend to perform. This could be a review of your investments in terms of balancing them, checking up that you are meeting your savings target etc.

Then you proceed to the Monthly plan and mark out what you want to do. Finally you mark what weekly activities you want. Perhaps every Sunday evening you want to do a plan for the coming week in terms of purchases, groceries, contacts etc.

That’s all there is to it.

It is recommended to team up with your spouse, a family member or someone who is accepted into your money business.
Make a small session out of it and make sure to follow-up on the goals you have set, the progress you are making.
If not making the expected progress reflect with your peer on the reasons and figure whether you should do more, or accept the goal is unreasonable.
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Reach our for support and help if you want it.
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