Do You Need A Better Money Plan?
One definition of insanity is doing the same thing over and over again and expecting different results. If you want to improve your financial wellbeing, you might need to change your approach. You might need a better plan.
Your plan can be elaborate and complex, or it can be focused and straightforward. You need to know the general direction you want to go, in the form of priorities and outcomes, and the milestones you will use to measure progress. And then you need to adopt the right habits, behaviours and actions to make it happen.
I'm not a fan of setting too many financial life goals, because you can feel overwhelmed or like a failure if you don't fully achieve them. But having a general direction and context for daily money actions is helpful.
In my experience, most people aren't clear about what they want from life, or if they are, they are not sure of the role of money in achieving it. Recent research by Morningstar found that just looking at a list of possible financial goals enabled people to develop a clearer idea of their general financial direction.
“One definition of insanity is doing the same thing over and over again and expecting different results.” Tweet This
Potential Financial Life Goals and Priorities
To be better off than my peers
To pay for personal self-improvement (e.g., go back to school, learn a skill)
To experience the excitement of investing
To start a new business
To buy a house
To help pay for my kids' college education
To stop working and do something I love
To go on a dream vacation
To relocate in retirement
To care for my ageing parents
To give to charity or other causes I care about
To feel secure about my finances in retirement
To feel secure about my finances now
To leave an inheritance to my loved ones
To retire early
To pay for future medical expenses
To not be a financial burden to my family as I grow older
Source: Morningstar - Mining for Goals: How Behavioural Nudges Can Help Investors Discover More Meaningful Goals
Make The Long-Term Smaller
I've found it easiest to plan personal finances in 3 year periods, which are then broken down into critical tasks and milestones over the next 12 months. These two elements - tasks and milestones - then inform your daily, weekly and monthly money habits and behaviours.
My wife and I created our first financial plan 21 years ago when I was 30. We had five key life objectives that we wanted our money to serve:
My wife wanted to be a stay at home mum (we had one baby then);
We wanted to have life experiences rather than have possessions;
We wanted to give our children a good education and a good start in life;
We wanted to be debt-free by the time I was 50;
We wanted paid work to be optional by my early 50s.
We combined these overarching priorities with the principles that underpin The 8 Money Milestones to provide a clear framework for making financial decisions. The foundation of our money plan has been Money Milestone 1 - The Smart Spending System - which enables us to tell our money where we want it to go.
We achieved all our original objectives (but not without plenty of setbacks and challenges along the way), and are now reaping the rewards. We are now redefining our priorities and lifestyle needs, and aligning our working, spending and savings actions accordingly.
By striking a balance between enjoying life today, while also improving your future, you maximise your happiness and minimise your stress.
A financial plan is not a straight jacket, that can't be varied or changed. It should represent a considered approach for dealing with your money, and a reference point to enable you better to handle the inevitable setbacks, difficulties, mistakes and detours.
John Lennon wrote that life is what happens when you're busy making other plans. Creating or updating your financial life plan today will help you live your idea of a good life both today and tomorrow. Download the Strategic Money Plan for free to get started.