"Everyone has a plan 'till they get punched in the face." - Mike Tyson
“A good plan now is better than a perfect plan executed next
week.” - General
George S. Patton
Introduction
On
the face of it the value of a plan may seem self-evident, but whether you get
hit by an economic punch or have a sub-par plan, it bears repeating, because
according to the 2012 National Consumer Survey on Personal Finance, nearly 66%
of respondents did not have a financial plan. This is problematic, because in
the absence of a plan, how do you know where you are going? And, how do you
know how to get there? As Vanguard, the Valley Forge, PA fund giant puts it, “A
carefully conceived financial plan is a must-have for every investor. It’s the
blueprint that spells out the details of your short- and long-term financial
well-being.”
Purpose
Carl
Richards, author of “The One-Page Financial Plan” points out, “before you
plan…you have to know why you are planning.” Richards goes on to say, “the best
financial plan has nothing to do with what the markets are doing and everything
to do with what’s important to you – your life, your dreams, your goals.” The purpose of a plan is simple. It provides
a roadmap for your financial path. Planning is the process by
which you take stock of your life, organize your financial affairs and
better understand your values. It helps identify goals and aspirations, and
charts a course for the future. A well constructed plan reconciles hopes and
dreams with reality, imposes discipline upon the investment process, provides
peace of mind and is the basis for all future conversations. It
is your personal Rosetta Stone - the reference you return to over time.
Basic Issues
A
formal financial plan does
not need to be fancy, but it should provide an accounting of your assets,
liabilities, current and future income, risk tolerance, time horizon and goals.
Core issues addressed within the context of a financial planning conversation
are saving and spending habits, short term and long term financial goals, expected
life changes, taxes, charitable giving, de-cumulation and the passing of wealth
to heirs.
The Value Of
A Plan
A
plan communicates purpose and shows intent toward a goal, but it should also be
flexible enough to adapt to changing circumstance. It helps you to think about
the issues and align your life goals. A formal plan increases the chance of
making good decisions and decreases the chance of making bad decisions. A plan
helps remove emotion from the markets and imposes structure and discipline upon
the decision making process. A plan creates buy-in and commitment to a course
of action, and serves as something tangible against which to gauge progress. Above
all a good plan should match with your personal and emotional DNA (it is no
good having a plan if you can’t stick to it!).
Bottom-Line
A financial plan is about more than money. It is about why money is
important to you and how that translates to your life. It is an insight to the inner
individual. Having a plan is critical to establishing good financial habits
and setting a path to the future. A plan is something that moves you from being
reactive to events and circumstances, to something more measured in the
management of your financial affairs. As such, it is probably a good idea to
have a plan.
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