Forget new year or new decade resolutions. In 2020 make yourself the gift of a financial plan. If you think financial planning is boring and by the numbers, we are here to change that. A financial plan is much more than that. Keep reading and you will realize that financial planning is about making the connection between the tangible things in life, like money, and the intangible things that bring us life satisfaction, like watching your kids learn how to swim or helping someone in need. Life and money questions are connected.
Start simple
We are not talking about a 60 pages plan full of pie-charts, simulations, or accurate budgeting over the next 25 years. No, we are simply advocating for a simple plan that contains a few, carefully selected elements. This simple plan is a single page, written with a sharpie, and it may have no numbers. Take a piece of stock paper, divide it into three areas, and write as headers, from left to right: Values, Goals, Actions, like this.
The idea of the simple plan is to change your mindset, from just “going through” life to “having a strategy” to make the most out of your resources, including time, energy, passion, and money. Going through the process of filling this out will bring you awareness of what’s important to you and what’s not, so you can focus on the former.
Discover your values
The first benefit of financial planning is discovering your values. At DESMO, we use the word values to summarize anything important that you are trying to achieve in life. Money is important to you only to the extent it helps you achieve life satisfaction. You can’t start a financial plan without first thinking why money is important to you. So, the first step in planning is discovering, through deep thinking or a conversation with a trusted friend or advisor, of the really important things in your life. Examples are more time with your family, starting a business, spending time cycling with friends, and traveling to a new country every year. Having clear values is not just a step in creating a personal plan. Your values are the why of your plan. Values act as motivators, can help us acquire and stick with good financial habits and can get us out of negative thinking when things get tough on the way to our goals. Learn how to discover your values here, and write them down in the Value column. Use sticky notes to add color if you like.
Set life goals
“If you don’t know where you are going, you may not get there,” says Yogi Berra.
If values are the why of your plan, goals are the what. Use your values to set measurable goals that require planning to achieve. Determining goals is crucial in determining the actions you are going to take to maximize the likelihood of achieving them. Examples of goals are “save $X in 5-10 years to follow my passion and start my own business,” or “retire at age 60 with $Y per year available to travel.” Your goals have to be consistent with your values, so one way to set goals is to ask “what measurable result(s) will help me live up to my values?” Read our blog on how to set meaningful goals to get you started and write down a few, important goals that are consistent with your values. We have written a few blogs on retirement or education planning, which are common goals, so browse our blog page. If we haven’t covered your goal in our blog posts, let us know about it, and maybe we will. Write your goals under the Goals column.
What’s next?
Start with this simple question: “What can I do, starting today, that will get me closer to my goal?” And write down the answer. Repeat the question and answer as long as you want. Here are a couple of ideas, to get you started.
Get a clear picture of where you are
Knowing where you want to go isn’t helpful if you don’t know where you are. Do this by getting financially organized. Make an inventory of all the things you own and the things you owe. No need to get this down to the penny. Consider the things you own first. Your bank account, your 401(k) or similar account, any savings or investment accounts, your house, your cars, and other investment properties, like any real estate you may own besides your primary home. List them along with their values. Next, go through everything you owe. Your credit card balance, any bills or payments that are due in the next month or so, student loans, mortgage, car loans, etc. List them and add them all up. The difference between everything you own and everything you owe is your financial net worth.
The other key tool to help you get a good picture of where you are is budgeting. Budgeting is simply being aware of your income, expenses, and the difference between the two, which determines your saving capacity. We have written a few posts about budgeting, including a recent one on the XY Planning Network. To get started, read about our budgeting challenge.
It’s simple. Your goals tell you where you want to be. Your net worth tells you where you are. Your budget tells you about the path you are taking to get to your goal. There has to be alignment between these three, or chances are you won’t reach your goals. Read our blog to help you get financially organized and sign up for our complimentary tool.
Review your investments, talk to a Fee Only Financial Advisor in Austin TX
Think of your investments as tools to help you reach your financial goals. Wouldn’t it be great if your investments were working in sync with your goals? Unfortunately, that’s not how most people build their investments. So it’s always a good idea, as we review a plan, to think about this question: “are my investment aligned with my goals?” Go through our most important investment questions, and build investment guidelines that work for you. You may also want to think about managing your key risks. Do you have adequate insurance coverage? Think about life, auto, liability, disability, or potentially long term care needs. When was the last time you reviewed your insurance policies?
Conquer your fears
Many of us are afraid to go through this exercise because of fear of what we may find. But it’s well worth it. Many times our clients are nicely surprised by what they find. All their properties and investments are scattered through different accounts, so putting them together makes them realize they own more than they thought. And if that’s not the case, now you have information and a plan. You just started to make life changes, for the better.
Put it together
Here is what an investment plan may look like at the end of the process.
Yours may look completely different. You may need to review your insurance coverage, make a will or other estate planning documents, buy a boat to travel the world. All these are OK as long as there is consistency between values, goals, and actions. That’s it, you have your first financial plan!
Decide if you want to talk to a Fee Only Fiduciary in Austin Texas, Desmo Wealth Advisors can help
Go through this simple plan, get inspired, start working towards your goals on your own, then determine if you would benefit from talking to an advisor. Most fee-only advisors, like us, offer complimentary consultations, so talk to us. Don’t assume comprehensive financial planning with an expert is expensive and for rich people only. It’s much more affordable than you think, and the cost of not planning with an expert can be much higher.
Get started and commit to the process
You can be proud of what you have accomplished. Going through the process of putting together your plan is going to save you time and energy down the road. Think about the time and energy we normally spend just thinking and worrying about our finances. Having your values, goals, and actions clearly stated on a piece of paper brings awareness and focus. This focus can help you direct your time, energy, and money away from distractions and towards things that really matter to you.
Build momentum on what you just did. Go through the action list you just created. When you are done, review your values and goals, and update them as you go through life. Planning is a process, just like life. That is also why long financial plans and analyses don’t work. The key to a financial plan is to narrow your focus to what matters, and make small, consistent changes through time. So start with our simple plan and use it to build momentum.
Until next time!
Massi De Santis is an Austin, TX fee-only financial planner. DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives. As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.
