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Why You Need a Financial Plan

I read an interesting article over on Main Street.com where they claim half of the financial planners don’t have a financial plan for themselves.  So, how are you supposed to trust someone with a plan for your money, when they don’t have a plan for their own?  Either they are completely incompetent, they don’t believe it’s that important or they aren’t even investing for their own futures.

Here is the sad truth.  Many of the financial planners are thinly disguised salesmen for the financial services industry.  They may have planning titles and credentials, but their primary objective is generating sales and commissions.

Planning & Investing are Easy

Financial Plan

Image by Reyner Media

You don’t need an “expert” to show you a bunch of charts and graphs to create a basic financial plan.  You don’t need to pay high fees and commissions to pick a good investment.  Basic planning and investing are way easier than most of the things you do already and you can do both today, if you really feel like it.

I keep a list of all of my goals (financial, health, career, etc.) on a single page and review them monthly.  I have had this list of goals since 1992 and most have already been accomplished, so I have to create new goals.  I keep my investments very simple as well.  I have a discount brokerage account and six mutual funds.  I can total them up or track their performance in minutes.  Anyone could do this and the payoff is huge.

Three-Step Plan  (Reposted from 2008)

1. Goals - Make a short list of goals you are planning to achieve.  For me, my original goals were to buy a house, accumulate wealth and prepare for retirement.  Later, as I became a family man, I started college funds for my kids.  Start with your goals in mind and the direction becomes obvious.

2. Commitment - Goals and plans are worthless without action.  Step two is to make a commitment to your financial plan.  You need to decide how much you will invest and how much you will spend for debt reduction.  My recommendations are to save 10% and pay 20% toward debt.  But, everyone’s budget is different.  Start with whatever amounts you are comfortable with and increase them as your finances allow.

3. Investment - Picking investments is easy once you have goals and an investment amount.  My recommendation for new investors is a no-load mutual fund.  Pick a fund with low expenses and a good long-term track record.  If you have trouble choosing, pick an index fund.  The reason I like mutual funds is because they are convenient for making automatic monthly investments.  You can also use a brokerage account or ShareBuilder, if you would prefer to invest directly in stocks or ETFs.  I don’t recommend savings accounts, savings bonds or CDs for long-term investors, because they won’t keep pace with inflation.

The Bottom Line

The bottom line is that it’s nearly impossible to hit a goal you don’t have yet, so create some.  Without a plan, you have nothing to guide you and keep you on track, so make one.  After that, it only takes the commitment to succeed.

“Financial fitness is not pipe dream or a state of mind it’s a reality if you are willing to pursue it and embrace it.” - Will Robinson

Recommended Reading

Stop Worrying About Money – Invest in Your Work
101 Centavos – Stupid Interview Questions
The Wallet Doctor – Keep your Car from Eating your Cash

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