Managing and organizing your finances seems daunting, especially the idea of coming up with an actual financial plan. But never fear. In this six-part series we aim to defog the confusion.
Introduction: Just what is a financial plan?
From time to time, through friends or on TV, you’ve no doubt heard about the wisdom of organizing and managing your finances. Great idea, you think. Should do it.
Then you realize the next step is to carry the idea through into a plan. Wait. A plan? Whatever does that mean?
If you’re like a lot of people, you don’t know. It’s like facing a big fog of confusion, of the unknown.
So, you hold the idea in the back of your mind – and leave it for another day.
That’s okay in the short term. But it leaves the long term, your future, dangling.
Here’s the beauty –and yes, the challenge, at least at the start – of making a financial plan. You are identifying what you want out of life: the future you want to make happen.
Because a good plan leads to a good future. So, time to defog the confusion. In this six-part series of articles, we’re going to do just that. We’re going to demystify financial planning. To set out the various aspects of planning and explain them in clear, simple language. No jargon, no bafflegab.
And that’s how it should be – because, contrary to what you may think, financial planning actually makes your life just that: clearer and simpler!
Figuring out the future that’s right for you
Let’s start by defining just what a financial plan is. Think of organizing and managing your finances as if you were building your dream home. Where would you begin?
Well, you’d need to figure out the home that’s just right for you. You’d start by listing your must-haves. For example, a good community with a school nearby, low crime rate, fun restaurants. In short, you’d set down the things you value.
After identifying your area, you would hire an architect to construct a home that embodies what’s important to you. Like solid construction, great entertainment centre, maybe a sunroom. Based on the goals you specify, the architect would then prepare the blueprint for your ideal home.
It’s no different in getting your financial house in order.
Getting a financial playbook together
With your financial planner, you first identify and articulate your values, that is, what motivates you. Then you align those values with your goals: your priorities, what you want your life to look like.
Based on what you’ve set out as values and goals, your financial planner prepares a blueprint for you. We call it your financial playbook. Together, you and your planner go through the playbook to ensure it meets your goals.
In building a financial plan, we look at five key areas – and we’ll go over each of these in the coming articles:
- Rainy day fund
- Insurance: Your risk management
- Tax deferral.
In Part 2 of this series, we will look at the importance of setting aside money for emergencies. You might need a new water heater, say, or a new roof. But, as we’ll also learn, putting aside money can further be useful as an opportunity fund, for example, if a property comes on the market and you’re interested in buying it. Be sure to join me as I discuss A rainy day fund: The day to start is now.
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