How to Create an Effective Long-Term Financial Plan
November 12, 2013
Long-term financial planning is a key part of building wealth over time and creating your own success.
Creating an effective long-term financial plan can seem like a daunting task, however. In fact, many people get scared of the idea of creating such a plan, unsure of how they will be able to plan that far in advance.
If you want to create an effective long-term financial plan, here are a few steps you can follow:
1. Determine your goals.
Your first step is to figure out what you want to do with your money. Be specific! Too many people just have a vague idea that they should save for the future. Instead, look to the future, and determine what you want your financial resources to be used for. Some common milestones include:
- Buying a home
- Paying for your kids’ college education
- Retirement
Think about these milestones, and what it takes to meet your goals. You might have to break it down to say, “I want to save up $20,000 for a down payment on a house in the next three years,” or “I want to build up a next egg of $1 million so I can travel during retirement.”
Talking about your goals makes them more “real,” and you will be more likely to actually work toward them when you flesh them out.
2. Figure out what you need to do to make it happen.
Next, determine what you need to do in order to make it happen. There many online calculators that can help you estimate how much you need to set aside each month in order to increase the likelihood of reaching your goals. You can figure out how much you should put in an emergency fund, and how much should go in a tax-advantaged retirement account.
You can also get professional help in figuring out what to do in order to make your dreams a reality. There are a number of fee-only financial planners who are willing to help you chart a course over time. You pay one fee, and you get a financial plan that might even provide you with help deciding what to invest in, and what insurance policies make sense for your situation.
When you have clear goals, and a way to reach those goals, it’s much easier to stick with your plan.
3. Review your plan periodically.
Of course, life changes. You might have small changes crop up that mean a slightly different course of action over time. Your financial plan doesn’t have to be completely set in stone. You can review it on occasion to see how it stacks up. You might need to make some small adjustments over time in order to ensure that your plan remains effective.
Before you make drastic changes, though, make sure that you carefully think through the consequences. You don’t want to always change your plan. In fact, there are times when your plan can serve to keep you on track – even if you don’t feel like sticking with the plan right now. Remember that your long-term financial plan is designed to help you improve your situation over time. Sometimes that means that you have to make hard choices now.
Think about your plan, and what makes it work. And, more importantly, regularly remind yourself that your plan is going to lead to a future that is financially free.
What are some other ways you can create an effective long-term plan? What plan are you on? Leave a comment!
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You can also further break down your goals into short term (from 6 mos to 3 years), medium term goals (2 years to 5 years), long term (5 years and beyond), or however you want to define it. This helps you prioritize the tasks to achieve your goals and can also give you a sense of accomplishment every time you checked a goal done.
I think once you have a clearly defined goal it makes it so much easier to say no to impulse purchases.