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| 7 Financial Planning Lessons that can Change your life. |
Quick Takeaway
A financial plan isn’t just about numbers—it’s your roadmap to freedom and peace of mind. From tracking expenses and building an emergency fund to investing smartly and acting like your own money manager, small steps today can prevent big financial stress tomorrow. Start early, review often, and let your money work for the life you want.
I recall the very day that I noticed that I needed one. One Monday morning, my car stalled when it was pouring and the repair cost was like a shot in the forehead. I was not in a position to pay, and therefore used my credit card. The only thing that event taught me was more than any book on finance could have taught me. And, with an emergency fund, I would not have been worrying weeks to pay it off. That is when I vowed it to myself: I will no longer be running my life without a financial plan. I will begin to behave like my own financial manager.
And trust me, it changed everything once I began, my stress, my confidence, even my relationships. Money is not merely a matter of numbers because it is what life you can have or cannot have.
Reasons a Financial Plan Is More Important Than You Think.
A financial plan is like a map. And without it, you are merely wandering along. You might get somewhere alright, but is it where you really intended to get? Probably not.
I would think, I would sort it out when I got there. However, life does not operate that way. Crises do not postpone till payday. You may not get bills because you are stressed. And dreams? And they remain dreams unless you have an intention.
Calculate a financial plan to be a GPS. It keeps you out of dead ends when you set where you are going. When you come to a roadblock it diverteth you. In its absence, you become liable to be in circles.
Still unsure of the reason as to why it matters, here is a stat: the Consumer Financial Protection Bureau says that there were 9.6 million sub-prime home loans issued as recently as the year 2007.
Individuals who have a definite financial projection will save regularly and will not easily get into the trap of debts.
In my case, as soon as I ceased to wing it, and started mapping out the situation, I felt relieved. The unknown was no longer so scary.
My Original Attempt at Being Like a Money Manager.
On the first time, I attempted to play money manager, I believed I was smart to keep everything in my mind. Spoiler: it didn't work.
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I would say, I am familiar with the amount of money I spend. The reality however emerged when I sat down and used a notebook. Rent, power, rental services, online purchases, candy bars, spontaneous weekend outings--when I jotted them all down, the figures hit me on the face.
My monthly spending was by far 20 percent more than I thought it would be. It is not surprising I was earning a living on a paycheck to paycheck.
One of my friends who was an accountant laughed and told me, You are operating your life on a balance sheet free company. That stung. It was a wake-up call, too, of mine. A financially savvy person does not simply guess, he or she tracks.
Step 1: The first step here is to know where every rupee (or Dollar) goes.
This was a move that transformed me. I first wrote down all the expenses in paper and then shifted to apps in the future.
The funny part? I found out that I had been spending nearly $3,000 a month on snacks and coffee. It will cost you that much to get a weekend away!
Here's how I did it:
- During 30 days, I would trace all of my expenses. Yes, even the tiny ones.
- Towards the end of the month, I divided them into groups: essentials, wants, randoms.
- Then I started to question myself: Is this my priorities?
Spoiler again: it didn't. I was making more expenditures on wants than savings. And that is when my financial plan began to be shaped.
Shortcut: Don't criticize yourself during tracking. Just observe. It is to be aware, not to be guilty.
Step 2: How to Really Build an Emergency Fund.
The day when my laptop broke down was the day when I knew the power of emergency fund. I was on time, had no reserve and no savings. I recall the sitting on the floor and staring at the dead screen and asking myself, why didn't I plan it?
I have since done so as a rule: I keep at least a tenth of my money in a separate account. No excuses. That's my safety net. And now that life has thrown a curve ball, I am not panic stricken.
One of my friends used to pay because he urgently needed an operation. It was because she lacked an emergency fund and took a high interest loan. She was haunted years by that loan. Their plight further inspired me to work harder.
According to FDIC.gov
Even a small amount of savings can save families that have at least 500 that would keep them out of debt in the event of some small crisis. It is evidence that the emergency fund is not a choice, but a necessity.
Step 3: Making Goals Real (Not Numbers)
Nothing occurred when I initially wrote down my goal, save more. Why? Since unspecificified objectives are not motivating. Financial plan should have emotionally related goals.
Therefore, I transformed my goals to those I could imagine:
- Clear my credit card within 6 months to sleep better.
- Save 1-lakh in Japan tour to enable me to visit cherry blossoms.
- Create a retirement savings in order to quit worrying about old age.
Whenever I was tempted to quit, I imagined the Japanese scenarios where I was having sushi under cherry-trees. That image helped to keep me in check.
Unless your objectives are exciting, then your financial plan will gather dust. Make them personal. Make them yours.
Step 4: Investing Without Fear
The term investing was something that I was afraid of. My vision was of stock market crashes and greedy stock brokers and losing all my money. And not to spend money, is like not to exercise you will have to pay after that.
I started small. I invested in a mutual fund with $500 as my first ever investment. It was not about the money, it was about defending myself that I could begin.
In the long run, I came to know that investing was only a habit. The sooner you start the better is your financial planning. Even Einstein (yes, the genius), referred to the compound interest as the eighth wonder of the world.
To prove this, the guide on compound interest released by SEC. demonstrates that even the smallest quantities become huge in decades.
To my younger cousins, I advise: do not wait until the right time. The perfect time is today.
Step 5: Protection and Insurance: The Tedious yet Important Step.
Nobody likes paying insurance. I also did not, until the time my friend was in an accident. A single hospitalization looted off his whole savings. I was jostled by seeing him scurry to lend some money.
That is when I understood: insurance is no cost, but protection. An insurance is viewed as a veil by a money manager. You wish it will never come, but when life deals you a storm, you are thankful that it is there.
Health insurance and term insurance are now included in my financial plan. It is not a glamour but it is the peace of mind.
Step 6: Revising and Updating my Financing plan frequently.
Life changes. Jobs shift. Families grow. Dreams evolve. This is the reason why I sit down with my financial plan after every 6-month.
Occasionally I make more investments. Sometimes I adjust my goals. The thing is: it is going to be not a one-time project. It's a living document.
An old financial plan is like a traveller going to a new city with an old map it will not get him to the destination.
My Mistakes That You Can Learn To avoid.
Here are my biggest blunders:
- Areas debt is pushed off until it becomes a weed.
- Believing that investing is a wealthy thing.
- Thinking that little costs were irrelevant.
In retrospect, I would begin my financial plan. But never mind, it is better late than never. You can learn my mistakes and avoid them.
The Tools and Resources that assist me to keep on track.
I'm not fancy with tools. The following is what actually works out:
- Money Manager App: Assists with expenses tracking.
- Google Sheets: Strauss, forward, no frills.
- Websites like IRS.gov and Investopedia
Direct answers when I fail to understand.
Don't overcomplicate it. The most appropriate one is the one you will be using.
Conclusions: Your Life Plan Is Your Financial Plan.
One of the lessons here is the following, a financial plan is not only about money. It's about freedom. It involves being capable of saying yes to opportunities and saying no to stress.
At the time you become your own money manager, you know money is not in charge anymore, you are.
And believe me, there is no feeling like that.
FAQs
Will I really need a financial plan because I make a low income?
Yes. Financial plan will get you to stretch your money even with a meager income thus preventing stress.
Is it possible to equip a financial plan without a money manager?
Of course. A lot of individuals do it independently using applications and manuals. You can do it now, but a professional money manager can assist you.
How frequently do I need to review my financial plan?
At least every 6 months. Life is dynamic and your financial plan is supposed to be dynamic, too.
