setting financial goals and prioritizing them. Now it’s time to determine the actions necessary to get from where you are to where you want to be. An effective action plan is a series of steps that, if accomplished, will get you to your goal.Plans are the blueprints for how to make your goals become reality. Last week, we discussed
There is an abundance of resources to help you transfer your future goal into present savings needs. You no longer need to have mad math skills to see where you stand in relation to your financial goals. For example, financial calculators for goals such as retirement savings and debt payoff can do the work for you. You can even make various changes to your assumptions and see what impact they have.
Keep in mind that you may not be on-track for all your financial goals right from the start. This takes time.
You’ll often need to start working on them and gradually move in the direction of being on-track. This is a normal process. It’s common to have more — and bigger — financial goals than your current income will fund.
Much as there is a series of things you can do to help make your goals meaningful and realistic, there are things that you can do to increase the likelihood of achieving them with a well-conceived, effective action plan.
1. Write It Down
This probably isn’t news, but we can all use an occasional gentle reminder: Written plans are far more effective than non-written ones. You especially need to have your plans for long-term goals in writing. This will be a valuable aid in monitoring progress.
2. Establish Accountability
There are a variety of systems you can use to hold yourself accountable. One of the simplest and easiest ways is to share your plans openly.
Make your commitment to your plans well-known. Allowing others to know where you stand and what you’re doing forces you to be accountable. External accountability is a great motivator.
3. Establish a Feedback System
There will be external factors (like changes in the economy), as well as changes in your personal situation that will affect your financial goals. These changes may necessitate reviewing and adjusting your plan to stay on-course to achieve your goals.
The exact timeframe and frequency of your reviews should strike a balance between being too far apart to adequately adjust and occurring so often as to be a burden.
For financial goals, you should formally review your progress at least once a year to make sufficient adjustments to meet long-term goals. That said, reviewing your action plan more frequently than quarterly is most likely unnecessary and unproductive.
Naturally, consider adjustments when any major change crops up, but don’t drive yourself crazy switching investments like mad. People who chase returns by frequently switching investments often end up with a lower performance than those who hold quality investments for longer periods.
A Final Thought
Great — now you have a solid action plan. But there are a few things that we should dig into a little deeper on. Stay tuned for a discussion of taxes and insurance!