A financial plan is an important part of financial success. It is the first step to building wealth, but the best plans do not work if you do not have the ability to follow through on your financial plan. It is not uncommon for people to make the determination to get out of debt, or to begin saving aggressively for a down payment on their first home, only to realize a month later they are not any closer to achieving the goals that the financial plan was created to accomplish. A financial plan can help you determine the order you work on financial goals. Your financial plan can guide you as you make major financial decisions, and help you reach your goals, but you need to follow it to reap these benefits.
1. Start with an Effective Plan
The truth is that writing down a budget, a plan to get out of debt or specific investment goals is the easy part of the plan. If you have not yet actually written down the plan somewhere, you will not be able to successfully follow through on the plan, because you will not know if it really works or not. Your plan needs to be doable on paper or it will not be doable in life. For example, if you sit down and plan that you want to save $1,000.00 a month, but your take-home pay is only $1800.00, it is unlikely you will be able to do that. Writing it down on paper and posting it somewhere to review will help you be successful. It can help to have both a monthly and annual budget in place to help you make your plan work.
2. Set Realistic Expectations
The follow-through on the plan is the most difficult part of reaching your goal. This is especially true if you are tightening your budget in order to reach your goals. It can be just as difficult to pick up the second job if you need to because of the extra time that will be required. Remember when it comes to finances you have control over the amount of money you have coming in and the amount of money going out. You need to adjust your expenses so that you can reach your goal. That is why it is so important to have a realistic budget to follow. If you have difficulty tracking your items you may want to switch to cash for your problem items. Once you get to the point where you are ready to invest, consult a financial planner to solidify it.
3. Reward Your Progress
Another important part of making your financial plan work is to have the end goal in mind. While some goals such as retirement may seem far away, you can break down the goal into smaller steps and reward yourself as you reach those steps. For example, when you pay off your debt you may reward yourself with a nice vacation, but you can earn a nice evening out for every $1,000.00 you pay off in debt. Similarly, you may want to reward yourself on your retirement goals once you begin contributing fifteen percent to retirement each year, and then celebrate milestones such as your first $100,000 in retirement savings. After you do this, you may want to assess your progress and set new goals to work on.
4. Make It Automatic
Make as many parts of your financial plan automatic. This means setting up monthly transfers to your savings account and retirement accounts. As you adjust your budget and limit your spending this will become easier as well. Using cash makes it easier to follow your budget because you instantly know when you have reached your limit. Set up your transfers to happen on payday or the day after. Once you have done this for a few months you will no longer miss the money.
5. Work Together to Reach Your Goals
If you are married, then your financial plan will not be successful if you are not working together with your spouse. This means that both of you pay the bills, plan the budget, and decide how to spend the money. Both of you need to track the expenses and have a solid idea of where you are financial. Meet together to plan the money on a regular basis. This means at least once a week. It will let you check in on the budget, track how your goals are going, and eliminate confusion about the finances. It will take compromise, but once you work together things will go much better for you. Following these suggestions will help you be ready for each of the financial steps.