A financial plan outlines your goals and provides a path for achieving them. It provides peace of mind that you are on the right track and that you and your family are prepared for any uncertainties that might arise. A great financial plan doesn't have to be complicated; in fact, the easier it is to understand, the more likely you are to follow it.
Follow these steps to create your very own SMART financial plan:
1) Understand your current financial picture
When creating your plan, it helps to know where you currently stand. This involves evaluating your current assets and debts, as well as things like insurance policies, and cashflow (income & expenses). You can do this on a notepad, a spreadsheet, or with an online financial planning tool like Frame.
Tip: try not to fall into the trap of comparing yourself to others. Everyone has different priorities and obligations. Remember, the intent of a personal financial plan is to see how you can best reach your unique goals.
2) Create an amazing plan
Now that you know where you stand, the next step is to develop your plan. The SMART framework can help you create and follow an amazing financial plan.
Specific: Your plan should have defined and detailed goals. For example:
- Don't say, "I want to buy a house"
- Try the following, "In early 2020 I want to buy a three bedroom house for $475,000 with a 20% down-payment"
Measurable: Having a plan is great, but if you can't measure it, you won't be able evaluate your progress. As you set your long-term goals, and develop a strategy to reach them, create measurable targets that will help you see if you are on track to reach them.
For example, if you want to save up $30,000 for a new car in three years, set a saving target of $10,000 per year. Every year you can easily measure if you are progressing towards this goal.
Achievable: It might be nice to think about buying a $2,000,000 vacation home next month, but if you have debts to pay off and earn $40,000 a year, this likely isn't an achievable goal.
When you set goals that are not realistic, you are setting yourself up for failure early on, and you might lose your motivation. Your plan doesn't have to be 'easy', but it should be achievable.
Relevant: This is where you want to think about what is important to you. Do you want to retire early? Do you dream of traveling the world? If you have children, do you want to leave an inheritance?
There is no right or wrong answer here; it depends on what's relevant to you and your happiness.
Time-bound: It's important to set time frames for goals within your plan. Almost everyone who is currently working wants to retire at some point, but having a specific target age in mind gives you a much more focused objective to work towards.
3) Update and adjust your plan as required
Life always throws curve balls that can impact your plan. If you get married, have kids, change careers, move cities, or return to school, it's important to update your plan.
With Frame, you can create a custom and fully adjustable financial plan in minutes and connect with our team for additional guidance - all for free! Since you can easily add goals to your plan and see if you are on track to reach them, your Frame financial plan is always a SMART plan.