More than ever, it is crucial to have a sound financial plan to achieve your money goals. Unfortunately, regardless of income, most people don’t make a financial plan. Instead, they go through life worrying about paying bills and having enough money to buy a house, pay for their children’s college, or retire.
Regardless of where you are in your financial journey and life, these are five steps you can start working on today to create your own financial plan:
- Budget Your Money Consistently
- Calculate Your Debt Snowball
- Make A List Of Specific Financial Goals
- Figure Out Your Net Worth
- Consider Strategies To Grow Your Wealth
Let’s look at how each of these steps will help you create a practical path to achieve your goals faster.
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1.- Budget Your Money Consistently
Having a sound system to track your income and manage your expenses is crucial. Although some people dislike doing a budget, the reality is that paying attention to where your money is going is a foundational part of building wealth.
A budget, whether you do it on paper, on a spreadsheet, or using an app, will force you to pay attention to your spending habits. And, you know what they say about paying attention? What you focus on, you get more of.
When you budget with intention every month, you get more control of where your finances are going. The key is always to live below your means so that you can have money left after covering your living expenses to grow wealth and enjoy life.
I recommend using a physical planner to budget. Some people may think that doing a budget on paper is more time consuming than choosing an electronic method. And that is right. But remember, you get more of what you focus on.
The time you spend tracking your income, expenses and reviewing your financial goals is absolutely worth it. Tracking your finances on paper will create awareness, a key ingredient for success. The more time you spend monitoring your income and expenses, the more control you will have over your results.
I believe so much in tracking your finances that I even created a Financial planner. You can check it out in my store.
2.- Calculate Your Debt Snowball
Mainstream financial planners teach you to leverage debt to “grow” your wealth. In reality, financial liabilities, even those with low-interest rates, will always hold you back from achieving your best financial future. And the reason is simple.
Your income is your primary tool to grow wealth. When you tie your money up to monthly debt payments, you limit its growth potential. The truth is that freeing up your income by becoming 100% debt-free as soon as possible is the fastest way to achieve your financial goals.
The more money that you have, the faster you can start growing wealth. For this reason, a good plan for financial success should always prioritize getting out of debt ASAP.
If paying all of your debt sounds overwhelming, first focus on your consumer debt. Start with making a list of all your debt, including car loans, credit cards, student loans, personal loans, etc. And, I recommend that you use the debt snowball method to get started.
The Debt Snowball Method
The debt snowball method consists of organizing all your consumer debt, except mortgages, from the smallest balance to the largest. Make minimum payments on all your debts and aggressively attack the lowest balance to pay it off as soon as possible.
Continue this process in order regardless of the interest rates on your other debts. The point is to start making progress quickly by paying off the smallest debts to free up more cash to tackle the bigger ones. Making progress with the small ones will keep you motivated, even if some of your more substantial debts are at higher interest rates.
Since the purpose of the debt snowball method is to get out of debt ASAP, interest rates become irrelevant. The only reason interest rates matter is when you plan on keeping your debt in the long run. That’s exactly the opposite you want to do to grow your net worth.
Instead, do everything humanly possible to generate extra income, cut down your lifestyle, and reduce expenses. This extra cash will allow you to make large payments towards your debt.
The debt snowball requires a lot of discipline and commitment to stick to, but it will save you and make you thousands of dollars in the long run.
3.- Make A List Of Specific Financial Goals
A good plan for financial success must also include a written list of goals you would like to achieve within a specific time frame. Think about setting short, medium, and long term goals.
Short-term goals are those that you can set to achieve in a matter of days, weeks, or even months. These should include getting on a budget, starting your debt snowball, and stopping adding to your debt by not using credit cards.
Medium-term goals should include things that would take you a little bit of time to achieve. Think about those goals you could tackle in one to three years. For instance, paying off credit card debt, building a fully-funded emergency fund of six months of expenses, or paying off your car.
Long-term goals are those more ambitious goals that will take a while to accomplish. For example, reaching $100,000 in investments, paying off your house early, or saving enough money to buy an investment property in cash.
4.- Figure Out Your Net Worth
Calculating and tracking your net worth growth is one of the most objective ways to measure your financial progress.
To calculate your net worth:
- List of all your assets and their value. Include things like your cars, homes, investments, jewelry, antiques, etc.
- Write the balance due on those purchases if you financed them.
- Subtract the total debt from the full value of your assets to obtain your net worth.
I recommend that you do this exercise at the beginning of every year to measure your progress. It takes time to move the needle in the right direction. Then, set goals to increase your net worth throughout the rest of the year.
Don’t forget, one of the easiest ways to improve your net worth is by getting out of debt fast. Also, make sure you are putting your money into things that tend to appreciate in value and not depreciate. For instance, even though a nicer vehicle may increase your perceived sense of status, most cars will depreciate unless you are talking about a collectible.
It would be a better financial decision not to upgrade vehicles, and instead, put that money into an investment that can yield a better return. Paying down your mortgage or adding extra to your retirement account are moves that will result in a financial gain in the long run.
Don’t be discouraged if you have a negative net worth value. If you have a lot of debt and not enough value on your assets, this will be the case. However, the beauty of doing this net worth exercise is that you will now have objective information to create a better growth plan.
GOAL SETTING WORKBOOK
Set and keep track of your money goals with our FREE financial goal-setting workbook.
5.- Consider Strategies To Grow Your Wealth
Did you know that the main reason that keeps people from investing money is not a lack of knowledge? It is a lack of cash. In other words, they don’t have money left after paying their bills to invest in their future. That’s why it is so important to get out of debt as soon as possible.
Every good financial plan must include a strategy to grow wealth consistent with your money principles. If having your money tied up in the stock market makes you nervous, don’t choose that as your primary strategy to invest most of your money.
Make decisions that make you feel comfortable, regardless of their growth potential. Diversifying your investments is always a great strategy. You can have money invested in mutual funds, real estate, and why not invest in developing a small business idea as well.
A good financial plan must be unique and targeted to serve your individual needs. What your best friend or neighbor is doing to grow wealth might not be the best fit for you.
You don’t need a financial advisor to start growing your net worth. However, it is good to work with one if you don’t feel comfortable managing your investments.
If you chose to work with a professional, I recommend learning about investments before handing over your money. You need to know enough to recognize when an investment professional is not acting in your best interest.
So, before you start interviewing candidates, make sure you read several books on the topic, get referrals from friends, and listen to your intuition when talking to your potential advisor.
You want to work with somebody who will listen to your needs, fears, dreams, and objectives. If the advisor wants to impose a plan, and not develop one to fit your needs, find another one. That’s a perfect example of somebody who does not have your best interest at heart.
In Conclusion: 5 Steps To Build Your Own Financial Plan
Everybody should have a financial plan that can empower them to live out their best financial future, and you don’t need to go to a professional to get started.
These are five foundational things you must consider to achieve your money goals in life:
- Budget Your Money Consistently
- Calculate Your Debt Snowball
- Make A List Of Specific Financial Goals
- Figure Out Your Net Worth
- Consider Strategies To Grow Your Wealth
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Additional Resources
If you need more help getting your plan off the ground, you should consider working with a financial coach. We offer self-paced and individual custom financial coaching programs.
Our coaching services, financial planners, and cash envelope systems are designed to save you money and time. Our goal is to help you manage your money with confidence and ditch debt as soon as possible so that you can reach your financial goals faster.
To learn more about our online financial self-paced coaching program, click here.
To sign up for our preferred one-on-one coaching program and develop together a custom plan for your financial success, click here.
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