Financial Planning is a term that put a lot of people off. To some it means obsessing about money, to others it implies budgeting, to yet others it may mean paying someone to prepare a 75 page book that takes every contingency into account between now and forever.
But there’s another way of thinking about financial planning. I call it “Financial Mapping.”
Let’s say you have a goal of retiring at age 65 with $5 million in assets. You’re 35 and have a good job. You have put $150,000 away and are putting 10% of your salary into savings. Can you reach your goal? Are you saving enough? And how hard will your money have to work to help you get to your financial objective?
This kind of analysis does not require budgeting or telephone sized books to figure out.
It’s like planning a cross country trip for your vacation. You get out your maps and try to figure out how many miles you need to cover each day to finish your trip within the time you have for vacation. And every day you mark your progress. There may be side trips so each day you may not go as far as you planned. You may have to adjust your speed, the hours you drive and the sights you see. You may even decide that you can’t reach your goal and settle for something a little closer before you head home.
A simple financial plan can be thought of as that road map. You know where you start, you set a specific goal, prepare an estimate of your savings and your expected rate of return and see if that will allow you to reach your goal. And every year your update your net worth, just like marking where you are on a road map. If your financial map tells you that you are on track, you’re good for another year. If you’re above or below the track that gets you to your goal, you can increase or decrease your savings rate or change your investment strategy. Or you can adjust your goal. And it’s all on a single sheet of paper.
If you’re interested in creating your own financial map, get in touch with us. We’ll be happy to help.