Why Most Financial Plans Fail (and how to create one that works).

Financial planning. It’s something we all know we should do, but often falls off our radars. We have the best intentions, yet life throws curveballs, motivation fades, and suddenly that meticulous plan is gathering dust on a shelf. But why do so many financial plans fail? And more importantly, how can you create one that actually works?

The Top Reasons Financial Plans Fail:

  1. Lack of Specific Goals: A vague desire to “be rich” isn’t enough. Without clear, measurable goals (e.g., “save $20,000 for a down payment by December 2024”), your plan lacks direction.
  2. Ignoring the “B” Word: Budgeting. It’s not glamorous, but it’s the bedrock of any successful plan. Without understanding your income and expenses, you can’t realistically allocate funds towards your goals.
  3. Life Happens: Job loss, unexpected expenses, illness – life throws surprises that can derail even the best plans. Flexibility and adaptability are crucial.
  4. Failure to Adjust: Inflation, market fluctuations, and changing personal circumstances require regular reviews and adjustments to your plan. A static plan quickly becomes outdated. 
  5. Doing it Alone: Financial planning can be complex. Seeking professional advice from a financial advisor can provide valuable insights and accountability.

     

Creating a Financial Plan That Works:

  1. Define Your Goals: Be specific! What do you want to achieve and when? Short-term goals (like a vacation) and long-term goals (like retirement) should be considered.
  2. Create a Realistic Budget: Track your income and expenses. Identify areas where you can cut back and allocate more towards your goals.
  3. Build an Emergency Fund: Aim for 3-6 months of living expenses in an easily accessible account. This protects you in case of unexpected events.
  4. Invest Wisely: Understand your risk tolerance and invest accordingly. Consider diversification across different asset classes.
  5. Regularly Review and Adjust: At least annually, review your plan and make adjustments based on your progress, changing circumstances, and economic conditions.
  6. Seek Professional Advice: A financial advisor can provide personalised guidance, help you stay on track, and navigate complex financial decisions.
  7. In case you haven’t formed the habit of clearing your credit card every month, make that a goal. Talk about learn about money!
  8. The total amount of unpaid outstanding credit card debt in Australia is a staggering $41.5 billion.  That is an average unpaid account balance of around $3,500 per man, woman and child in our country with our population of 26.64million people.

And the interest rate charged on a credit card is over 20.00% per annum!  

 

Remember:

A successful financial plan is not a “set it and forget it” exercise. It’s an ongoing process that requires commitment, flexibility, and regular attention. 

By following these steps and seeking professional guidance when needed, you can create a plan that empowers you to achieve your financial goals and build a secure future.

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