the basic guide to setting up a financial plan done the modern way

7/26/2019 The Basic Guide to Setting Up a Financial Plan Done the Modern Way

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THE BASIC GUIDE TO

A FINANCIAL PLAN

DONE THE MODERN WAY



Disclaimer

This e-book has been written for information purposes only. Every efforthas been made to make this ebook as complete and accurate as possible.

Also, this ebook provides information only up to the publishing date.Therefore, this ebook should be used as a guide - not as the ultimatesource.

The purpose of this ebook is to educate. The author and the publisher doesnot warrant that the information contained in this e-book is fully completeand shall not be responsible for any errors or omissions. The author andpublisher shall have neither liability nor responsibility to any person or entitywith respect to any loss or damage caused or alleged to be caused directlyor indirectly by this e-book.



Table of Contents

Pages

Foreword .................................................................................................4

No. 1 Knowing The Basics !!!!!!!!...!!!.!!!!!!! 5

No. 2 The Financial Planning Process !!!!!!.!!!!!...! ...6

- Traditional Financial Planning!!!!!!! !!!!... 6

- Modern Financial Planning!!.!!!!!!!!!!.... 6

- The 6 Step Financial Planning Process!!!!!!!! 7

No. 3 Goal Setting and Implementation !!!!!!!!!!!!!. 12



Foreword

This book is for all those who want guidance in developing andimplementing their own financial plan and who do not want to seetheir hard earned cash and assets slip through their fingers due tolack of preparation and knowledge.

In order to make progress, the first and most significant step in

financial planning is to determine and assess your attitudes aboutmoney, in general. Are you ready to accept the responsibility ofchanging your financial condition? Are you willing to change the wayyou make financial decisions? Are you aware of the benefits ofchanging your money management behavior? If you are, then you areready to start your path to financial wellness and abundance.

Many of us may have the slightest knowledge of basic financialplanning. To most of us, having a financial plan is to have an incomeearned from a regular job or business and paying bills on time. It is,in reality, more than that. Financial planning encompasses a widescope of money matters including budgeting, debt, expenses, saving,insurance and retirement, investing, among others. These topicsaffect each other for laying the groundwork for a firm and stablefinancial foundation. It guides you through all your money mattersand makes sure you attain your goals, even if there are roadblocksalong the way.

How do we then create a workable financial plan? It may not be that

easy and may require constant adjustments and tweaking.

It is our objective to share you some ideas that will help you developa plan covering on the basics that will place you on a journey to asecure financial future.



Chapter

Knowing The Basics

“In life's journey, having the ability to predict the future gives us an unfair advantage. If

we can understand the laws of cause and effect, anyone can predict the future. What

we do today leads us to tomorrow's destination.

Why does this simple truth seem to be difficult for most people to understand?”

" Celso Cukierkorn

As long as there is basic knowledge on the laws of cause and effect,

anybody can predict the future. All we have to do is get a deeper

understanding about it. What you sow today, you reap tomorrow. This is

the basic law of cause and effect. What you need then is a good and

effective financial plan to secure your future.

Financial planning is the process of realizing your dreams and financial

aspirations in life in a very systematic and expert management of your

finances. This allows you to assess and control your financial condition that

will give you financial security especially during retirement. It provides you

a blueprint on how you can realize your dreams and can serve as a

roadmap of your financial goals.



Here are reasons why you need comprehensive financial planning:

• It provides more effectiveness in the use and protection of your

financial resources all throughout your lifetime

• It gives you more control on money matters that will enable you to

avoid excessive debt, dependence on others and bankruptcy

• You can have more improvement on your personal relationships as a

result of effective communication and well planned financial decisions

• You enjoy the freedom from financial anxieties that can help you

achieve your financial goals

• It provides you the confidence that you are on the right track and that

you will have the money when you need it.



Chapter 2

The Financial Planning Process

We all know that planning financially for our future is something that we all

must do, but most of us don’t take it seriously until it’s too late. Living

without a plan is like drifting in a boat aimlessly going nowhere. More often

than not, the drifter ends up encountering storms along the way without any

preparations. If we apply this analogy to our actual life, a person who

doesn’t have a sound financial plan ends up in heavy debt and mounting

financial obligations and the worst part is he may end up poor in his old

age.

Traditionally, when we think of financial planning, we look at how much you

earn, how much is needed to pay your bills and maintain your desired

lifestyle. It is all about math and money. As long as you balance your

checkbook and pay your taxes, you’re good. But that’s not enough. The

sad part is most people prefer to put off worrying about their future until it

comes. Others are just resigned to the fact that bills need to be dealt withimmediately since you don’t have much choice and there’s not much

money left to invest for the future.

The modern concept of proper financial planning is more about money and

math. It’s called life planning and what makes it different from the traditional

one is that it covers a broader aspect and the focus is more about your

future and how you can make your life more meaningful. You look aheadtowards your retirement and at the same time adjust your current lifestyle to

achieve that dream lifestyle in the future. It’s not on who dies with the most

amount of wealth, but what you get the most out of your life.



According to Life Planning Network, “Life planning is a guided process by

which an individual takes stock of his or her life, clarifies goals and

challenges, and identifies the steps needed to move forward. A life

planning professional can help address relevant issues and find resources -

people and information - needed for a successful transition.”

“Life planning is often collaborative because life issues cross more thanone discipline. As a result, you may need to work with more than oneprofessional, including financial planners, attorneys, coaches, counselorsand other professionals.”

The premise of life planning is that you need to determine the mostessential goals in life before you create a financial plan. In this way, your

finances will fully support your short and long-term goals.

For a more effective financial plan, we have laid down the step by step

financial planning process that will help you align your goals with your

current circumstances.

Step 1. Gather relevant information to determine your current financial

condition in reference to your earnings, living expenses, debts and savings.

This can be done by preparing a list of your assets, debts and expenses.

This information will help you in your preparation of your financial plan and

in understanding where you are. It tells the next steps you’ll be taking to

make sure you are on top of your finances.

Step 2. Define and apply S.M.A.R.T goals. Based on your current

situation, ask yourself. “What are your needs or goals in the future?”, “What

is the plan?”, “What strategies should you employ to accomplish your

goals?”



Setting goals that motivate you leads to financial success. To develop your

financial goals, analyze your values on money by identifying what beliefs

and attitude you hold since they play a major role in the creation of your

financial goals. Do you believe in paying cash or credit cards to buy

expensive items? Do you view money as a means to secure for your futureor something that you should spend on? Are the goals important to you and

can you see value in them?

Once you have established your goals, then the next step is to work out the

details on how you can accomplish them. Have a solid plan and write them

down. Writing them down makes your goals tangible and realistic.

• Do you want to get out of debt?

• Do you have a mortgage or car to pay?• Do you have kids who will attend college?

• What age would you hope to retire?

These may be some of the essential goals that you wish to attain in life. It

is best to translate them into the idea of S.M.A.R.T. goals into your

personal financial goals as follows:

S – Specific - Which means that your goal should be clear, detailed and

well defined? It should address the following 5 questions:

- What? What is your goal in 5 words or less? What is it you want to

accomplish? Your goal should be identified and should be brief and

concise.

- Where? Where are you going to work on this goal?

- Why? Why do you want this goal? State reasons why.

- Who? Who are the people you want to get involved with to make your

goals happen?

- Which? This is more on how you will be doing it. Are there any

constraints that should be looked into? Which tools will you be using

to achieve your goals?



M - Measurable – Your target goal should be measured or compared with

your actual and current performance; what you have achieved so far in

terms of reaching your goals. It should have precise data such as amounts

and dates or any other information vital to the attainment of your goals. You

need to keep track of the progress towards its successful completion.When assessing the measurability, here are the questions that should be

considered:

- How much? How much money is exactly needed to retire at 60 years

old? How much is the remaining amount of debt to be paid? Having

an exact number gives you a target to aspire for and a measuring

tool.

- How many? This question may refer to something that is countable.

How many of a certain thing should be achieved to reach your goal.

The clearest way is to express it in numbers; how many times should

be done to achieve your goal.

A – Achievable - Goals should be attainable. Inspite of the hurdles and

challenges, make sure that you can make them possible. Identify goals that

are most significant to you and think of ways on how you can make them

come true. You can make use of your skills, abilities, attitudes and financial

capacity to reach them. Goals that challenge you are the ones that will giveyou the greatest personal satisfaction.

R – Realistic - Choose goals that are essential and meaningful. It has to

be relevant to the direction you want in life in terms of your personal and

professional advantage as well as your family. It has to be aligned with

current and future circumstances as well, be it yours or your loved ones.

Let’s say you want to save a certain amount for the college education of

your kid, will the amount you’ve saved be relevant and realistic 10 years

from now?

T – Time Bound - Goals should be accomplished within a specific time

frame. It should have a timetable and a deadline. A commitment to target

dates for each of your goals helps you to focus your efforts more urgently

to complete them.



Step 3. Analyze the information at hand and do some risk analysis. Then,

make an action plan. An action plan consists of all the steps that are

needed to be done to achieve your goals. The best way is to write down all

possible alternative courses of action and sort out which of these will be

carried forward towards your final action plans. At this point, you need todo the selection process. After listing down all possible courses of action,

analyze the reasons for or against taking the action and note down any

possible risks. This allows you to weigh the pros and cons of each course

of action and the return on investment (ROI) that can be derived from them.

When finding the cons/reasons against the action, consider the negative

criteria such as the difficulty, risks, costs, or any possible problem that may

occur. When finding the pros/reasons for taking the action, consider all

positive criteria that will support the benefits offered such as the ease and

speed of implementation, how well your financial goal might be met and the

affordability. The criteria will depend on the priorities you have set for your

lifetime goals, specifically on the urgency of your needs to attain your

goals. When faced with a lot of choices, we cross out those that are less

needed. We reject them based on the priorities of our selection criteria.

A good technique in choosing the best course of action is through risk

analysis and forecasting. Project into the future the alternatives you areconsidering and visualize the possible outcomes, if we decide to implement

any of the alternative courses of action. Forecasting makes use of your

mental analysis to weigh all possible implications and results of each

alternative you are considering and how likely each of these are. You can

then finalize the actions plans that will catapult you towards achieving your

goals.

Bear in mind that as you go through the process, you may be giving up

other opportunities or narrowing down alternatives. The final selectionmakes use of more positive criteria for implementation. Make sure that you

have selected the best among possible alternative courses of action that

would give you the most benefit in realizing your progress towards the

attainment of your ultimate goals.



Step 4. Develop and create a financial plan. You now have created the

action plans or tasks needed to carry out your objectives. This will serve as

your roadmap of your financial planning decisions. Go through each task

carefully. What’s the first action plan you need to do? Some examples of

action plans are increasing your income by getting part time jobs or startinga side business. Let’s say you want to increase your savings for retirement,

you need to go slow on your spending and start tracking your expenses by

using a tool called a budget. Your action plans should be listed based on

the priorities of your goals such as timetable, specific deadlines or

availability of the resources needed.

Step 5. Implementation of the financial plan. As you have the entire

financial plan, you can look at each task in closer detail and determine if

there are any action plans that you can drop without affecting the

accomplishment of your objectives. You can even ask the professional help

of a financial planner if there is a need. Is there a necessity to arrange

additional resources in the implementation of your financial plan? Do you

need to beat deadlines? If your goal is to invest your savings in stocks,

mutual funds or bonds, you may need the help of a stockbroker to

purchase stocks. Your focus should always be on the implementation of

your action plans to progress on your financial goals.

Step 6. Reviewing and revising the financial plan. Remember, financial

planning is an ongoing activity. Keep yourself on track and regularly review

your financial plan to make it always relevant to the times. A yearly update

can be done, aside from an assessment of your progress towards the

attainment of your goals. The end result may be the same over the long

term, but along the way, you need to make priority adjustments. The most

important thing in your financial planning is having a clear idea of where

you are and where you want to go.



Chapter 3

Goal Setting and Implementation

It is much easier to accomplish goals and effect change when you have aclear vision of what you’re after. Goal setting is a good way to refine thatvision.

Go over your ideal goals. Fix them in your mind and keep them there whileyou go through the process of implementing your action plans. In the end,your goals, no matter how small or apparently removed the immediate onesare, should all contribute in some way toward helping you realize your longterm goal of financial freedom and living a meaningful life. Sit down andnote down the following:

YOUR FIVE-YEAR GOALS

In terms of moving you towards your life goals, list down 10 goals you wantto accomplish by five years from now. Be reasonable but don’t think small.Five years is a good chunk of time. The following may be some of yourgoals:

1. Be free of debt2. Live in a beautiful house in a gated village3. Be married4. Get a car5. Raise kids6. Send them to the best schools7. Save for retirement8. Have a viable business9. Have a sensible investment strategy

10.Be adequately protected through insurance.

When you’ve finished, note down your



ONE-YEAR GOALS

Under this heading, draw up a list of goals for the coming year that wouldcontribute toward helping you realize your 5-year goals. Make them goalsyou think you have a reasonably good chance of accomplishing over thenext year. Example, from the previous list, these could be the following:

1. Be well under way with a Repayment Plan of your debt2. Know just where you want to build or buy a house3. Know more about investing and make your first investment4. Be meeting people who are more suitable to marriage than not5. Invest and enroll in some course for personal development6. Save to buy a car or look into some reasonable installment plans

When you’ve finished, note down your

ONE-MONTH GOALS

Here, list down goals you would like to achieve in the next 30 days thatwould act in support of your one-year goals. Based upon our listed one-year goals, these might be:

1. Make a list of any creditors and figure out what percentage of your totaldebt represents the amount you owe each.2. Look up for any course that might interest you that will help you developyour business skills or enhance your career3. Meet someone who might be pleased to go out with.4. Know the price range of the type of car you want to buy in the nearfuture5. Ask about insurance plans or retirement plans

When you’ve done this, write



ONE-WEEK GOALS

Under this heading, list down goals you’d like to accomplish in the comingweek that would help you realize your goals for the month. Here are somepossible ones:

1. Create a budget or a spending plan2. List the 5 qualities that would be important to you in a spouse3. Learn more about investing and business by reading books

As you will note from the examples, the larger the time frame involved, thelarger a goal will be; conversely, the smaller the time frame, the smaller thegoal. One of your goals for five years from now, for example, is to be debtfree, but your goal for the coming week, in the service of that larger goal, is

merely to create a Budget or a Spending Plan.

You begin with a definite vision of what you eventually want on the largescale, and then reduce it downwards into even smaller actions or goals asyou approach nearer to today. This ensures that all of your action plans, nomatter how small, move you closer to your goals for the week or month,and in turn, these will advance you steadily toward your large-scale goals,which are much further off. As mentioned in the earlier chapter, your goalswill be the basis of your financial planning.

While you go through the implementation of your action plans, it must be

noted that the most difficult part in financial planning is predicting the

unknown. Any financial plan, no matter how systematic and organized it

may be, can be thrown off anytime with just one emergency such as

sudden illness, loss of job, divorce, etc. Be prepared to set aside money for

an emergency fund of at least 3 to 6 months worth of living expenses.

These are merely steps and tips to start right on to the modern way of

financial planning. By following them, you can be well on your way tocreating a sound financial foundation and a more meaningful and happy

life.



In order to make progress in getting out of debt towards a more secure

financial future, you need to understand where you are at any point in time

and what steps are you taking in making sure that you are on top of your

financial obligations.

We may have limited ability to manage more than 5 things at a time. It is a

challenge to mentally track various bills and different accounts with different

due dates so we become overwhelmed and lose track of where our

finances are headed.

Whether you are married or single, taking charge of your overall financesmay feel like a part-time job. Some easy ideas can help you streamlineyour time, organize your finances, and reduce the stress of debt and overallmoney matters. These ideas will help you free yourself from debt and stayfree forever.

Thank you for reading my book!

Laurent Dionisio, CPA, RFP http://www.PinoyFinancialPlanning.com

the basic guide to setting up a financial plan done the modern way

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