As the New Year turns I would encourage anybody who doesn’t have one, to go get a financial plan put together. But remember, just having one will not solve everything immediately all by itself. It’s a continual process, and your plan gets out of date and loses its accuracy over time. Just like a ships heading, your financial plan has to be continually updated. There are all kinds of external forces, like return and inflation, that require continual updating in order for you to accurately hit your mark.
If we were sailing a ship across the Pacific, instead of return and inflation, we would be talking about the external forces of wind and currents. In space, it would be external gravitational forces acting upon our spaceship, requiring numerous course changes and thrust burns in order to hit our mark.
Don’t let the thought of continual planning seem too daunting. It’s not like you have to re-create your entire plan anytime there is a change in circumstances. Rather, it’s just small tweaks, minor adjustments, and good monitoring habits that make everything come together.
Also, don’t get too caught up on making your initial plan PERFECT. If you do, you may never finish (or even start for that matter). Because we know it’s going to change, your plan does not have to be perfect, it just has to get you pointed in the right direction.
Too many people get caught up in the details with decisions around whether they should use a ROTH or a Traditional IRA, a 529 Savings plan or UGMA account for their kids, or what mutual fund is best. Initially, NONE OF THIS MATTERS AT ALL! I mean, sure, we need to be smart about our decisions, but initially, it’s not as much about choosing where to hit the ball as it is about just stepping up to the plate in the first place. You can read a number of articles or Google search all about 529 plans for college, ROTH vs traditional IRA’s, etc. But that won’t help you unless you have a good foundation of conceptual understanding about planning out your personal financial goals.
