Close your eyes for a moment and conjure up what your dream future looks like. Are you first-class flying around the world, sipping mimosas resort side with your besties? Have you retired early or maybe invested in your next venture? Whatever that picture looks like for you, the one thing I know for sure is that planning ahead of time will dramatically improve the likelihood of turning that vision into your lived reality.
So, where do you begin? First things first, to get from where you are to where you envision being will require a certain kind of vehicle, and that vehicle is money. Planning for your most fabulous future requires planning for your most fabulous financial future, too. That’s exactly what I’ll be sharing with you here: how to do it. View this as your comprehensive guide to mastering your personal financial planning in a way that feels easy to understand and simple to implement.
What’s your current financial situation?
Please don’t pull an ostrich! You see, most people know they need to take better care of their finances and should be checking in on them more regularly and taking actions to improve their situation, but despite the best of intentions, they end up pulling an “ostrich!” A.k.a., burying their head in the sand and hoping that if they don’t look at it, then maybe their money worries, problems, or fears might just magically go away.
Unfortunately, as you and I both know, things don’t just go away. They just get worse and even more difficult to face. So let’s make this an ostrich-free zone…Agreed?! To do that, I’m going to invite you on a special date, with your money. Strangely enough, online dating has become less taboo than money dating; however, dare I say, the latter may be even more important and certainly not something to ditch at the last minute.
Have regular money dates
So what is a money date, and how exactly do you go on one?
A money date is a dedicated time to get up close and personal with all aspects of your money. It’s time to face your finances head-on, open up your accounts (maybe search for lost passwords first!), and assess what exactly is going on. How much money is coming in, how much is flowing out, how much you’re holding on to, and if it’s all lining up to get you to where you ultimately want to be, financially?
One of the biggest ‘aha’ moments for people when I take them through this is awareness. Up to this point, they had no idea what was really going on in their accounts; they just knew it kind of all worked itself out. With this new awareness comes empowerment and clarity to make impactful changes. For example, deciding to redirect money being spent on unused subscriptions towards paying down your debt a bit faster, or putting it to work for you in your investment account.
Once you clearly understand your financial starting point, it’s time to go through your priority list of financial goals step by step.
What are your unique financial goals?
I know goal setting is nothing new or groundbreaking to talk about, and it may even bring with it an eye roll, wondering, “When is she going to get to the good stuff?!” But here’s the thing: if you don’t know where you’re going, how will you ever get there?
The idea of setting financial goals has become so common that every person will attest to knowing it, but how many do you think actually do it? If you were to walk down a busy city street and ask a hundred people, “What are your financial goals?” How many do you think could clearly articulate them? And of those, how many do you think have a clear plan to achieve them?
My guess is maybe five at best! We have access to a vast amount of information at our fingertips, but with that overload, also comes overwhelm. Where do you even begin? In terms of setting financial goals specifically, there are three questions you must answer:
- Clarity: What is one financial goal you want to achieve?
- Time: What time frame do you want to achieve your goal?
- Why: What is your why?
But first, let’s explore what financial goals you need to set, in what order, and why. I call these your “Financial Milestones.”
Your “FU” Fund
The first milestone in your journey is setting up your “FU” fund. Sometimes referred to as your emergency fund or rainy day fund, this is savings set aside for those “Oh ****!” moments.
The amount you decide to save will vary depending on your personal circumstances, for example, whether you have a steady income or if it’s more variable. A great starting point is building up savings that will cover 3-6 months of your “fixed expenses.” These are your essential outgoings, including rent, mortgage payments, insurance, utilities, basic groceries, and contractual debt repayments.
You might be wondering, “Where do I put my emergency fund savings? Is it in a regular savings account? Definitely not!
That is a fast road to losing money, thanks to something called inflation. Instead, deposit your savings into a high-yield or high-interest rate savings account (this is commonly referred to as an HYSA). A quick search online of “the best HYSA in (insert your country)” should bring up a list of the best options currently available to you. Just be sure to choose an account that gives you immediate access to your savings at any time without any penalty.
Max out your employer-match workplace pension
If you currently work for an employer, then this is a great financial opportunity that you’ll want to take absolute advantage of! I only wish my 23-year-old self, starting my career, didn’t think she was “too young” to think about a pension and instead benefited from this financial hack much sooner.
Most employers offer a pension contribution scheme to employees whereby they will match your pension contributions up to a set amount. For example, if you commit to contributing 5% of your pre-tax salary towards your pension, then your employer will match that 5% and the total 10% of your gross salary will be put towards your pension.
The great thing about this scheme is that your employer is basically giving you free money for your future self. A total win!
Pay down any high-interest-rate debt
Whether it feels like you’re drawing in debt or just dabbling with it, the key thing is to know where you stand with it and what your action plan is to clear it. The first step you need to take is to determine what type of debt you have. Is it high or low-interest-rate debt? This is key to know because it will impact what debts you’re going to prioritize paying down, as well as when you’ll start investing.
High-interest rate debt is classified as any debt with an interest repayment rate of above 7%, and as you may guess, low-interest rate debt is that which has an interest repayment rate of below 7%. You might be wondering what relation this has to investing. The reason you want to prioritize paying down high-interest-rate debt first is that the average return you can expect from investing in the market is about 10% (before any adjustments for inflation).
In some years, these returns will be much higher, and in other years they will be lower. So “annualized,” when we even it out over time, you can roughly expect a 10% return from investing in the markets. Target inflation is 2-3%, which means that money loses its purchasing power by 2-3% every year. Therefore, when you adjust your expected investment returns for inflation, you can conservatively expect a return of 7%.
For a real-life example, let’s assume Natalie is paying 22% interest on her credit card debt, a high-interest rate debt. Before clearing her credit card debt, she decides to start investing. The amount Natalie is earning from investing her money is LESS than what she has to pay in interest on her debts. So even though she’s winning on the one hand through investing, she’s losing much more on the other hand due to the high cost of her debts. That is why prioritizing paying down high-interest-rate debt first makes financial sense and is another key milestone on your financial journey.
Start investing and pay down low-interest-rate debt
Now for the money-making part, investing! This is by far one of the most exciting steps for people setting out on their financial voyage. Seeing the money they’ve worked for, go to work for them! Talk about a financial flex! When you arrive at this milestone, you get to shift focus to your wealth creation machine through investing and refocus on paying down debt with interest repayments of below 7%.
In terms of securing your financial future, this is one of the most important steps. People will rarely earn their way to financial freedom and real wealth, but they can certainly invest their way there.
The investing landscape can seem like a complex and confusing monkey maze to navigate, but as someone with a Bsc degree in finance, a Chartered Accountant, and who has worked in the financial industry for over a decade, I can assure you that so much of that perceived complexity is intentionally built in to justify charging extortionate fees to get solutions.
Saving for life events
With your “FU” fund in place, your debts dealt with, and your money working for you through your investments, the next milestone is saving for life events.
This could be anything from saving for a down payment on a home, a big trip you want to take, that dream wedding you’re filling your Pinterest board with, or launching your passion-fueled business. This is the money you want access to in less than five to seven years. The reason I emphasize this timeline here is that these savings should not go into your investments.
Why? Well, with a shorter timeline, it’s too risky to bet on the markets being in a positive upswing, and you don’t want to be forced to withdraw your money or leave yourself financially vulnerable in a downturn where you’d be negatively impacted by the market fluctuations.
The takeaway: Your action plan
With the knowledge of your current financial situation in hand, all ostriches uninvited to the party, and with the clarity on what financial milestone you need to focus on first, it’s time to write down your goals so you can begin taking action and jump-start your financial journey to greater freedom.
Let’s take a moment to reflect back on where we began. Your financial goals. Remember, there are three key steps in setting successful financial goals.
- Clarity: What is one financial goal you want to achieve? (E.g., I’ve saved three months of essential expenses in my “FU” fund)
- Time: When do you want to achieve it? (E.g., I have done this by June 31st, i.e., in six months’ time)
- Why: Why is this financial goal important to you? (E.g., So I am financially independent).
If your financial goal goes beyond one month, like in the example above, then simply break your goal into monthly milestones so it’s easy to track. For example, let’s assume Becky’s essential expenses are $1,200 per month. Using the above goal-setting example, her three-month “FU” fund would be:
- (Essential Expenses of $1,200) x (3 months) = $3,600
- $3,600 ÷ (6 month time frame) = $600.
- So Becky’s goal is to save $600 in her “FU” Fund per month
Congratulations! You now have your step-by-step process to create your financial plan, and it’s time to take action.
Open your diary now and schedule your first money date, where you’ll assess your current financial situation. Bookmark this article so you can easily refer back to it and assess what financial milestones you will need to prioritize first. Then, set your goals and start taking action. My top tip is to make your money dates a monthly occurrence so you can track your progress and adjust your actions if needed. Remember, ostriches are out; money dates are in. Now go celebrate yourself! You’re turning up to make major money moves to improve your finances and financial future, so be really proud of yourself!
Laura Tynan is the founder of The Witch of Wall Street, a personal finance and investing community, where women are shown how to manage, multiply and manifest money, using simple strategies. Laura holds a BSc Hons in Finance, is a Chartered Accountant, and is certified in EFT Tapping, Breathwork, and RRT. She has been recognized by the Financial Times as a Top 20 Future Female Leader and by Yahoo! Finance as a Global Champion of Women in Business. She is a multi-award-winning speaker who has spoken at, and been featured in, Forbes. Laura hosts The Witch of Wall Street podcast and is the author of the personal finance and investing book for women, by the same name, which is available now on Amazon.
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