Making a Financial Plan

From financial goals to financial plan. Making a financial plan is similar to plotting a course for a journey. First, you should establish financial goals. Many people set qualitative goals, such as retiring at 55 or 65 and maintaining the same lifestyle they currently enjoy. This is OK, but you may find it more effective to establish specific, concrete dollar goals.

For example, suppose you want to buy a house in five years. The house costs $200,000, and you'll need to accumulate $20,000 to make the 10-percent down payment. Or, to retire and live comfortably, you decide you'll need to accumulate $800,000 in financial assets by the time you reach your 65th birthday. Specific goals help you arrange your spending and investing habits in such a way that you can achieve your financial goals. Then you can decide how to arrange your financial affairs. This is a financial plan.

Learn what you need to do to create a working plan for you. This may entail attending seminars and workshops, following insightful radio and TV shows, reading books and magazines, visiting web sites, and meeting experts (consultants, planners, and advisors). You might want to develop an investment program and an asset allocation. The key is to become familiar with, and gain an understanding of, the steps you need to take and which financial products will help you achieve your goals. You don't have to become an expert in these areas. Rather, you should develop a strong enough working knowledge to know which products will help you and which ones you'll want to avoid.

A simple plan. Success means achieving your goals and objectives. And the key to success is making a financial plan that works and is simple to implement and maintain. A working financial plan might entail opening a mutual fund account or enrolling in your employer's retirement program (for example, a 401(k) or 403(b) plan) and making regular contributions to take full advantage of your employer's matching contributions. You might decide to bring lunch from home twice a week and form a carpool. Then you might want to invest the money that you haven't spent in your mutual fund. These action steps are relatively straightforward – easy to understand and easy to implement – yet effective. And that can mean the difference between achieving your goals and missing the mark.

Take action. The only way you'll ever succeed and reach your financial goals is to make a specific and detailed plan and put it into action. This means translating theory into practice. A well-written plan is simply a wall ornament until you begin investing. And finally, you'll need to monitor your progress against your goals. This will help you know whether your plan is working and you are on track to attain your financial goals. And be sure to adapt and adjust your plan over time to meet new circumstances and situations.

The writer, Joseph Gelb, is a CPA and attorney who co-authored the Personal Budget Planner – A Guide for Financial Success and authored How to Build a Million Dollar Service Business (Small Business Advisors, www.smallbusinessadvice.com).