Financial planning is a lot like baking a cake or making a batch of cookies. Most recipes will use similar ingredients such as flower, sugar, and milk. However, there is still quite a bit you can customize, substitute, or make your own. Some of this comes in the form of trial and error and may include a fair bit of creativity. Here are some ingredients to consider when crafting your financial plan.
- Customization: Begin with building a plan around who you are and what you care about. There is no “one size fits all” financial plan. Trying to make someone else’s plan fit your life goals doesn’t turn out so well. Consider your values and what you see as important regarding your financial choices. These choices are often influenced by your background and upbringing with regard to your belief systems surrounding money, debt, and income. These experiences may have been good, and some may have been suboptimal. Reflecting on your past in order to outline your future priorities is a great place to start.
- Communication: It is important that customization works for you and also factors in others’ viewpoints and opinions. This could be a spouse or significant other who might have a completely different vision and view on making financial decisions. The fact that we are all unique can add complexity to the planning process and prioritization of goals.
- Financials: An updated balance sheet, a review of spending, and reflecting on your cash reserves are the core necessities to your financial plan, much like flower, sugar, and milk are to your recipe for success with respect to making cake or cookies.
- Timing: You wouldn’t pull your cake out of the oven if it wasn’t ready to eat, right? The same thing holds true with your investments. Knowing the timing and first use of each account will provide direction and purpose to your plan.
- Safety Net: Constructing a safety net around your plan ensures its continuance, regardless of unexpected life events. A safety net may include a written estate plan, a will, and/or various insurance products to hedge particular risks.
- Taxes: No one likes an overcooked cake or batch of cookies! If left unmonitored, taxes may cause a similar impact to your financial plan. An awareness of all taxes, and their propensity to change, makes a difference in your plan.
- Accountability: Having an accountability partner track your progress helps increase your probability of success. Creating a review schedule, in advance, twice each year, allows for reflection and adjustments as necessary.
- Future Fun: Make sure your plan includes fun, so you that you can enjoy the journey. These are the “sprinkles” and “icing” on your plan. Though they are not necessary, they do make things so much more enjoyable when added!