Thus far, we have established our goals, gathered data, and analyzed that data. Now it is time to put pen to paper and Develop your Plan.
Financial plans are written, organized strategies for maintaining financial health and accomplishing financial goals. Developing a financial plan will not only allow you to control your financial situation, but can enhance your quality of life by reducing the uncertainty you feel about money-related issues and future needs.
Let's say you need $1 million to reach your goal. The previous assumptions (in Step 3: Analyze the Data) brought you just $100,000 short at around $900,000. If you can handle taking more market risk, you could increase your exposure to stocks in an aggressive portfolio of mutual funds and assume a 9.00% rate of return. Assuming all other assumptions remain the same, and by increasing your expected return by 1.00%, your 30-year time horizon, and savings rates would bring you to a nest egg worth nearly $1.2 million!
But what if you want to keep the rate of return at 8.00% but increase your savings rate to $300 per month? You can still come close to your goal with $990,000.
You can see why this step's keyword is "develop." Financial planning requires devising alternative solutions that are achievable for each individual. With so many different variables to consider, your plan needs to evolve with your needs but remain within your capabilities and risk tolerance.
Remember to look at the big picture when developing your plan. Study the options available to you to meet your financial goals. For each goal, consider whether you should:
• Continue the same course of action.
• Expand your current situation.
• Change your current situation.
• Take a new course of action.
Select which strategies you'll employ to complete your financial plan. Take your life situation, personal values, and current economic conditions into consideration. Consider how you feel about where you currently stand financially versus where your goals would take you.
Finally, remain practical and remember that uncertainty will always be part of the picture. Step-by-step plans will move you toward your goals without leaving you feeling frustrated or defeated by the scope of your plan. Even once you've carefully completed your plan, the factors of your situation may change. The economy may dip, lowering investment concerns. The new job you decide to pursue may leave you personally or professionally unsatisfied. Do your best and remember that you have the ability to adjust your decisions later.
Don’t think you are alone. We all struggle to make plans. Implementing them may be even harder. There are an array of tools, worksheets, and how-to’s available online to assist you on your journey. Type in “Financial Plan worksheet” in your web browser and let the information flow in Getting Your Financial Life!