This book, ‘The One-Page Financial Plan,’ explains why money is important to you and provides you with all the ideas and tactics you need to achieve your financial goals. Carl Richards is a Certified Financial Planner known best for his New York Times weekly “Sketch Guy” column, which uses doodle-like images to explain complicated financial topics. He is also the author of ‘The Behavior Gap,’ a book that has received widespread acclaim. He is also a popular featured speaker at financial planning and visual learning conferences across the world.
Save money with a personal financial plan:
We generally worry about money more since we face expenditures like rent to pay, a family to feed, or automobile maintenance that might be costly at times. And you may discover at the end of the month that there isn’t enough money in your bank account to cover any such additional costs. Hence you require a financial strategy that is personalised to your lifestyle and circumstances. Making your customized personal financial plan can show you how a few easy changes may free up funds to accomplish the stuff you actually value.
‘Why money is important to you’:
Every great financial plan is based on a single question: “Why is money truly essential to you?”
As a doctor asks us the question “what’s wrong with your health?” in order to determine a fitting treatment for your ailment, you also need to ask yourself the question “why money is important to me?”. This will assist you in defining what you value, which will assist you in developing a financial strategy that is tailored to your specific circumstances.
One who wants to save money to travel the world and a person who wants to have a solid pension would most likely have completely different financial goals. A personalised financial plan can also assist you in determining if how you use your time represents your beliefs.
After deciding why money is essential to you, you must then set some financial objectives to guide your path towards the answer to the question.
Find out and fine-tune your goals, to reach them:
The author emphasizes the importance of accepting the reality that we cannot always foretell the future. As a result, your financial plan should be adaptable enough to deal with the uncertainty of the future. We should be prepared to change our financial goals if we ever get off track.
Assume one of your goals is to repay your Rs. 5 lakh education loan in three years. Suddenly, there comes a financial distress, and you are unable to save as much as you had anticipated. Instead of keeping to your original plan, you might rethink it and decide on repaying Rs. 3 lakhs in the same period of time.
We need to jot down our objectives based on the answer to the opening question “Why money is essential to me”.
For instance, if money matters to you because it will help you provide the greater prospects for your children, some of your goals could be to:
- Set aside extra cash to co-finance your son’s higher education;
- Send your daughter on a foreign exchange course;
- Set aside some emergency savings if your children do not find work immediately following college.
This may not be the perfect list for the aforementioned case, but you may modify it depending on your circumstances or as they change.
Assess your current financial situation:
You must have a comprehensive grasp of your present financial status, which is simply your ‘assets and liabilities’. This will assist you in taking the required actions to achieve your objectives, since you may not understand what you must do or where you wish to go if you do not know your financial situation.
Prepare a simple balance sheet to establish your present financial condition. A balance sheet is just a financial statement that shows what you own and what you owe.
Write a T shape on a sheet of paper, with your assets (such as investments and savings) on the left and your liabilities (such as your mortgage and debts) on the right. To calculate your net worth, just subtract your liabilities from your assets. According to the author, this is the preliminary step in creating a financial plan.
After you’ve set everything out on the balance sheet table, you’ll have a clear understanding of where you stand and can plan your next moves. For example, by doing in this exercise, you may discover that you still owe a significant amount of money on a car that you rarely use. Hence s elling it might help you get nearer to debt liberation.
Now Track what you spend:
Budgeting is just looking at how you spend your money and implementing changes to meet your financial objectives.
It has been proven time and again that financial success is only truly attainable if you budget wisely, watch how you spend your money, compare it to your goals, and adapt appropriately.
For example, if one of your goals is to travel more but you spend 30% of your income on entertainment costs like parties and fine dining, affording a foreign trip will be challenging. You’ll need to make some adjustments to your spending habits in order to make your goal of an overseas vacation a reality.
Make a note of your set monthly spending and make intentional attempts to reduce your expenses. Some examples include: instead of taking car hire, ride your bike to work; instead of eating out for lunch, bring food from home; and so on. Add up how many days you were able to accomplish these tiny improvements in your spending patterns.
You might also strive to make as few online purchases as possible in a month. You and your spouse may even make this reduction in spending habit a game by competing against each other. If you have a habit of shopping on the spur of the moment when it comes to ecommerce transactions, do not make the purchase immediately. Fill your online shopping cart, leave it for a few days, and then reconsider it after few days to see if you truly need those items.
By engaging in these activities, you will be able to realign your spending patterns and determine which items are truly necessary and which are frivolous.
View paying off debts as a form of investment:
The personal finance thumb rule of saving so-and-so proportion of your monthly income is not applicable to everyone because the purpose of saving money is obviously dependent on your individual position.
Once you’ve calculated how much money you can save, you can make your life much easier by automating the savings process. Assume you can manage to save Rs. 5000 every month. By automating the savings transaction first, you save time discussing whether to spend or save. You may ultimately forget about it and be pleasantly pleased to see that your savings have increased years later.
Alongside saving, you should pay off your debt obligations as quickly as possible, beginning with the one with the highest interest rate. Fast debt repayment is, in essence, an investment in your financial life. If you accumulate debt in the form of credit card debt or a personal loan for items that do not correspond with your objectives, you are assuring that you will be preoccupied with paying interest on your debts rather than saving for what you genuinely want to achieve in the future.
You’ve by now recognized where your money comes from, how you expend it, and you’ve also established a strategy to pay off your debt obligations.
The Last step in your plan is – ‘Where to Invest’:
So where would you put your money when it comes to investment? Should you listen to your friends, family, or so-called financial experts? We can follow their recommendations as well, but doing so is speculating rather than investing, i.e., making financial decisions based on gut instinct rather than logic.
Reviewing scholarly journals and other peer-reviewed materials about investing is an excellent method to prevent financial blunders and risks. For a long period of time, people have tried to make their money grow, and experts have studied investments for years. Forecasting how a stock will move in the future is a tricky thing that perception alone will not help you grasp.
Before making any investments, conduct research as if you were an innovator or a scientist. Otherwise, you may make choices that you later come to regret. In addition to approaching investment like a science, it’s critical to reduce risk by diversifying your portfolio, or distributing it over a variety of stock kinds.
No one stock will be your golden key to wealth, and even if such a stock existed, you won’t be able to locate it. Instead of focusing on a single multi-bagger, distribute your risk over as many industries as possible. While some may lose value, others may increase in value, helping to offset any possible losses.
Your portfolio should be diverse, comprising national and international companies, large and small, in a variety of industries. This gives you the best opportunity of generating a profit and meeting your financial objectives.
Summary:
The book summarizes these points – A financial plan begins with asking yourself why money is important to you and setting goals based on your response. Then it’s just a question of reviewing your spending, saving, and investing habits and making changes to those habits to put you on pace to meet your objectives.
One such insight from this book is that if you share finances with your spouse or partner, it is critical for them to engage in financial planning in order to determine which of your values match and which are contradictory. By doing so, the two of you may strive toward a financially secure future that benefits everyone.
