Before we start with this step, I strongly suggest you go back in time and read the whole series. Making a financial plan is not only about money and compounding interest. It is also about knowing yourself and about your goals. There is no point of writing down a nice financial plan with a nice growing curve showing your net worth increase years after years if you are not disciplined enough to make a budget.
So here are the basic things you must do before sitting down and write a financial plan:
– make a budget (that makes sense!)
– Talk to your spouse 😉
Then, you will have to determine a few other things before you start (yeah, it’s a pain, but this is what financial planners do!):
– Do you want children?
– If yes, you will have to make some space in your budget (for insurance and RESP).
– Do you want to buy a property, a vacation property, a boat or any other big expenses in the upcoming year (don’t worry, you don’t have to have all the answer right now, but the one you know will be pretty useful in your financial plan).
– When do you want to retire? Do you consider working part time? Starting a side business? Those things need to be assessed.
– Are you planning going back to school?
It will require a lot of your time and discussion with your spouse but if you want to have a solid financial plan, you need to start somewhere. It’s the same thing as building a house; you need proper foundation before thinking of what your kitchen will look like.
You are probably reading this and thinking “I don’t know what I want in 5 years!” and it is also good this way. A financial plan should be reviewed on a yearly basis anyway. Therefore, you will have the option of adding or taking off goals along the years. This is not meant to be carved in marble, this is meant to be a great path to your goals. Who said you were not allowed to switch path once in a while.
Once you are set with your goals and you have an rough idea of what is coming for you in the next 5 years (I know it’s hard but it will give you are great financial edge to realize anything), you are ready to start your financial plan. I have a tip if you have no clue of what you want in 5 years; save as much as you can (you still have to live; if you restrain yourself too much, you won’t keep your plan for long and it will end-up in the recycle bin!). Therefore, whenever you want to do something, you will have a great stack of money piled up ready to make you happy. Don’t forget that money can bring you happiness… it is just a matter of taming it 😉
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