5 Steps to a Great Financial Plan

Paul Atherton |
30-09-2021
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If you’re serious about getting out of debt and setting yourself up for a great future, you need a plan. To keep you from being overwhelmed, I’ve got 5 simple steps you can follow.

I get this question a lot: do I need a financial plan?

Well, if you want to get out of debt, make money, or live comfortably in your retirement, then the answer is yes. You need a financial plan.

But a sound financial plan isn’t easy. It takes time. You need to dedicate some time to it, which is probably why many people don’t do it.

Why is creating a financial plan hard work?

When it comes to a financial plan, what are some things you need to think about?

How much do I save? Do I need an emergency fund? Do I need insurance? What type of insurance do I need? Do I invest money? How much do I invest? What are suitable investments? How much should I save for a mortgage? Is this house too expensive? Do I need LMI?

Loads of questions that you should take into account when coming up with your financial plan.

That’s a lot of hard questions, so it’s no wonder that this seems like hard work—because it can be.

But starting a financial plan can be easier if you have the help of somebody else. It could be a knowledgeable family member or friend, or even better, a financial planner with significant experience.

But you can create a financial plan by yourself—it just takes a bit of work.

What are the benefits of a financial plan?

Imagine two couples: couple A and couple B.

Couple A has taken excellent care of their finances from a very young age. They’ve got everything in its place. They saved. They understood what they were doing. They invested.

Couple B is the “we’ll take care of that tomorrow” couple. They want to live their lives without too many worries. That’s fine.

But in several decades, there are going to be two totally different couples.

You’re going to have one that’s wealthy and one that isn’t doing too well financially.

You want to be couple A. Everybody wants that financial security in the future. But unfortunately, most people are couple B.

In 2016, CoreData, a global financial specialist research firm, published a study on financial wellness.

They found that 90% of “financial superstars”, people like couple A, spoke to a financial advisor. They either regularly consulted with an advisor or have consulted with one at some point.

They worked on a plan, with somebody, to scratch out a future. This financial planning, planning for their future, turned those people into financial superstars.

For the people with unhealthy finances, only 0.6% had seen an advisor. That’s a negligible number.

What does that mean?

If you don’t take your finances seriously, you’re going to end up in serious trouble.

The opposite is also true.

If you take your finances seriously, you will be in good shape.

That’s it. It’s that easy.

So, if you’re going to think about a financial plan, there are five levels.

The five levels to a great financial plan.

The first level is your budget.

Everybody should have a budget. You can have a detailed budget where you map every dollar, but nobody really lives like this, and it doesn’t make for a happy life.

You can set a budget more efficiently. Check out my post on budgeting.

And don’t worry, I won’t tell you to stop buying lattes.

Budget is the basis.

The second level of concern is debt management and elimination.

No one became wealthy by being overburdened by debt. Debt is dangerous. You need to take it head-on. One of my favourite ways to do this is through debt consolidation.

Third, after you’ve managed your budget and got debt under control, you need to start building your knowledge and goals.

Set yourself some goals and be clear on the targets you want to hit.

They can be any type of financial goal, but they need to be realistic. You may want to be a millionaire by the end of the year, but let’s sit down and see how realistic that is. You don’t want to take unnecessary risks by trying to hit an unreasonable goal.

Number 4 is managing risk.

Managing risk comes in two forms: diversifying and understanding your risk exposure.

Most people have taken on more risk than they’ve realised. Being too exposed to Australia’s economy is risky. Being too involved in illiquid investments – investments that you can’t leave easily—is incredibly risky.

Managing risk is also about insurance. You should be insured.

Number 5 is planning for the future.

So, set long-term goals. Imagine the kind of lifestyle you want to have when you’re 40, 50, and into retirement. And don’t forget to take control of your super.

Those are the five significant points of budget planning and financial planning that you should think about.

So, go get started, and don’t forget that we’re here if you need help.

To create a great financial plan, don’t forget…

  1. Creating a plan, especially starting one, is hard, but it’s worth it—get help from someone knowledgeable to make it a bit easier.
  2. Starting now is better than starting late—investing, saving, getting out of debt; it’s always better to start as soon as you can.
  3. Set manageable and achievable goals—even small goals can help give you motivation to stay on top of your finances.
  4. Get yourself insured—insurance will give you and your family piece of mind, and it’s worth every penny.
  5. Take control of your super—building your super will help you live a great life in retirement.

Want more tips on financial planning? Sign up for my newsletter below.

This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.

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Who is Paul Atherton, That Wall Street Guy?

An ex-Wall Street advisor who worked with major players in the global financial industry for over 30 years, Paul’s mission is to help regular people reclaim their wealth and financial security.

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