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Money factors into the majority of your big life plans — marriage, homes, careers, family, retirement, travel — so it’s important to have a financial plan. This is your life we’re talking about!
Women rock their financial plans! According to the University of California at Berkeley’s Haas School of Business, women make higher returns on their investments. The challenge is that too few women have one to begin with: less than 40 per cent — half that of their male counterparts.
I’m a massive proponent of women preparing their own one-page financial plan first, and then having a professional financial planner review the plan for a reality check, and to add “how-to” strategies. The DIY process will bring clarity to a woman’s goals — specifically how much those goals will cost.
Your financial plan consists of three components. The first is a set of goals you want to work towards. The second is your projected income growth, which will support your goals. The third is your projected net worth, which is the number we want to focus on growing through the financial planning process.
These three components are accompanied by “make it happen” strategies (this is the part where you insert a financial planner).
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Ready to draft your one-page financial plan?
Define your goals
A great financial plan starts with dreaming. Your dreams will drive your goals and choices around lifestyle, financial priorities, and budget. Ultimately, your dreams will lead you to a particular future such as a comfortable retirement, or trading in your house and car to travel the world. Now it’s your turn. State your goals in the following areas:
Financial goals: Savings, investments, debt
Personal goals: Real estate, family, travel and entertainment
Career goals: Raises, promotions, starting a business and more
Determine your expected income
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Incomes traditionally rise over the course of your career. You’ll advance in your skills and responsibilities and should receive compensation that matches those advancements. As part of your financial plan, you’ll want to take into account your future plans for increasing your income, as well as your timeline for those projected changes. There are three primary ways to increase your income, and you’ll want to determine which are most appropriate for your goals for the future:
Through raises and promotions from traditional employment with an employer
By starting and growing a profitable business, or
By producing income from your investments such as stocks, bonds, mutual funds, and real estate.
Now it’s your turn. How do you plan to grow your income?
Focus on net worth
Net worth is what you have left over after subtracting your liabilities (what you owe) from your assets (what you own). To grow it, you must reduce your liabilities and grow your assets. Growing your net worth is the foundation of any solid financial plan; so let the measure of your personal net worth drive the actions you will take to achieve your financial goals.
For example, your plan might be to increase your net worth by $ 5,000 this year by purchasing investments and making payments on your car loan.
Now it’s your turn. Track your net worth using a net worth tracking tool like MeVest’s Net Worth Tracker (right sidebar).
We’re all unique, so naturally your financial plan will be different from the next woman’s plan. No matter what your goals and current finances look like, though, you’ll know you’re on the right track if your net worth is going up every month.
Stay tuned because next week I’ll be writing about how to automate your plan.