*A shorter draft of this post originally appeared in my email newsletter on September 16, 2015. Missed it? Sign up on the homepage for weekly updates!
It often surprises people to learn that I do not have a financial plan.
(and I don’t think you should either)
I don’t make financial plans. I set goals or choose milestones, but I don’t “plan” on anything. For example, I have no idea how much I need to retire (I’m 29, for Godsakes!), I can’t predict what my income will be 3 years from now, let alone 5 or 10 years from now (am I allowed to say $1 million?), and I don’t know if or when my fiancé and I will buy a house (in this economy? Never!).
Personally, I find most plans distracting, limiting, and pointless. There are too many unknown variables. The more years the plan covers, the more useless it becomes. But people love plans. We love to map out our finances for the next 5, 10, 50 years and think about how great everything will be if it all goes according to plan.
It seems to occur to virtually no one that what you want for yourself at age 25 may not be what you want at age 65.
But you should throw out your plan and adopt some financial strategies instead.
A strategy is better than a plan because a strategy is about the execution of your goals rather than the hope or idea of them. But what do I mean by this? For example: An income goal is a financial plan, but a side hustle is a financial strategy.
You can spend your time thinking about how much you would like to make (aka. dreaming up a financial plan), or you can set up the systems to start delivering an increased income right away (aka. executing a financial strategy).
What do you think is more valuable?
Saying you would like to make an extra $5,000 per year…
setting up a side business that may only earn you a few hundred dollars this year, but thousands or even tens of thousands (dare we say hundreds of thousands?) of dollars in the years that follow?
Financial strategies to consider in order to add wealth to your own life:
- creating and sticking to a budget
- commit to saving a fixed amount of your paycheque
- choosing to live debt-free
- trying out a Shopping Ban
- investing in the stock market, even if you have little money
- negotiating your salary
- starting a business
- buying only used cars, or going without a car entirely
- renting instead of buying if it makes sense in your city
- cultivating multiple streams of income
- donating a fixed amount each month to charity
Too big? Think small, with mini financial strategies such as:
- reading one personal finance book each year
- practicing one or two no-spend days each week
- put a $20 bill in the pocket of your winter coat at the end of the season to “find” when you take it out next year (it’ll make your day, I swear!)
Actions are more powerful than plans.
You’re in control of your actions, but plans can be easily derailed by external forces. I should know, my plans rarely go according to plan. Remember that time I got a Bachelors degree in Chemistry? What is that even for? I had a plan. I can tell you my current life is not it, and for that I am eternally grateful.
You do not have control over things like the economy or whether or not you’re laid off from your job, but you DO have control over starting a side hustle, curtailing your spending, and building a fat savings account you can rely on in times of need.
Likewise, you have no control over house prices, but you DO have control over how much you save for a down-payment. You have no control over how well you age, or when you may need to stop working, but you DO have control over amassing enough savings to leave the workforce whenever you choose — decades before you turn 65!
Some plans are better when they don’t work out, and your financial plan is probably one of them.
One of the biggest mistakes you can make is sticking to a plan that no longer serves you. This could be a career you went to school for, but now hate. It could be a certain age you’ve pegged for retirement. I could be a number in your bank account that means you can start your business. If we’re married to our plan, we can miss being ready when an ideal opportunity presents itself.
It’s hard to talk yourself out of your own bad ideas. It feels so unnatural most people take it as a sign that it’s the wrong choice. It’s not.
Challenge your plans. Or rather, challenge your assumptions about your plans. The career you have, the amount of money you think you need, the lifestyle you want — it’s possible your plan is all wrong for you, even if you made it yourself. Your wants, needs, and tastes change with time, so look for financial strategies that are flexible and accommodate changing circumstances, rather than plans that keep you trapped in a lifestyle you no longer want.
A strategy is a set of behaviors or habits that you practice on an ongoing basis to meet your goals.
You don’t need to have a financial plan, but if you do, a strong financial strategy will let you achieve it on autopilot.