As this year comes to a close, we’ve set aside some time to create a New Year financial plan, which we think is important to our overarching goal of financial independence.
In other words, we’ll be learning all about money.
And to be honest, I believe everyone should do something like it too.
Why? Why is learning about money important? Why is managing money important in your personal life?
This post will answer all these questions, teach you how to create a personal financial development plan and give you effective financial planning tips for the New Year so you can stop living paycheck to paycheck – once and for all.
2018: The year of debt
2018 was a great year.
Except for the fact that we were financially in the red by the end of it.
That was the complete opposite of great.
We moved three times, which isn’t only mentally stressful, it also wrecked our financial plan. Two of those moves were rental properties and the third one was partly our own, thanks to the Scottish Government’s shared ownership scheme.
After that, our car broke down, followed closely by our fridge.
We then left for a long-planned and much-awaited 3-week holiday last Christmas. During which, we weren’t as vigilant with our finances as we should’ve been. Yes, we know. That’s our own fault.
Finally, on our way back, we missed our flight, courtesy of the horrendous traffic that Asian countries are known for. What should’ve been a 1.5-hour trip took 7 hours and by the time we got to the airport, not only had we missed the check-in but the plane had actually left!
We ended up borrowing money from relatives just to tide us over.
If you’ve ever been in debt, you know how that simple act of borrowing feels. The shame and the guilt take a toll on your self-esteem. Jim Rohn once said that emotions can be a powerful motivator. This is very true in our case. We finally decided that enough is enough. We will not be living paycheck to paycheck anymore (you can use that as a daily mantra by the way, we found it incredibly powerful)!
That’s why this year, we finally decided to take a very thorough look at the damage and see what we can salvage.
It was not pretty.
A part of us just wanted to be ostriches so we could stick our heads under the sand and not have to worry about money ever again.
Luckily, we shook that dark cloud off, listened to Jim Rohn’s advice on how to solve any problem and started working on our personal financial development:
Now, it’s December 2019 and I’m updating this post in preparation for the brand new year that’s coming to greet us in just a few short weeks. And I realise that so many things have changed.
My awareness is greater than it has ever been before.
I now understand that personal financial development is an integral part of the massive umbrella that is personal development. And that, just like with any other important aspect of life, we fail if we fail to plan.
Because money is a great source of worry and stress (and in fact, is the leading cause of divorce worldwide), it’s something that you need to take in hand in your quest for improving your life.
This post will help you go beyond the painful cycle of living paycheck to paycheck by giving you a detailed overview of personal financial development, the role it plays in life, who needs it and what you need to do to make sure that have a solid plan in place that will see you living a life free from money worries.
Side Note: This post is a bit long so make sure you bookmark this page if you don’t have enough time to read it in one go. Actually, bookmark it anyway so you can refer to it in the future. 🙂
What is a personal financial plan?
At its core, personal finance covers everything that has to do with how you use money – as a person, rather than a business – including the many ways you manage, save and invest it.
In fact, according to Investopedia, personal finance also “often refers to the entire industry that provides financial services to individuals and households and advises them about financial and investment opportunities”.
As I previously mentioned, money is a great source of worry and stress (and in fact, is one of the leading causes of divorce worldwide).
So, if you want to live the blissful life you deserve and be free from money worries, then you also need to be wiser with your personal finance and actually put an effective personal financial plan in place.
A solid personal financial plan, in other words, will detail where you get money (and when), where you spend it (and when) and your assets and liabilities (including insurance, mortgages, investments, retirement funds, and tax and estate plans).
Do I need personal financial planning?
In other words, who is personal financial planning for?
Everyone who deals with money and who relies on money for survival needs to have a solid personal financial plan in place.
Since, with very few exceptions, everyone is dealing with money and needs it to survive, then the easy answer to your question is: of course, you need personal financial planning.
So, contrary to popular opinion, you don’t have to be a millionaire in order to benefit from good financial planning.
In fact, if you’re not a millionaire but you want to be, then a good financial plan is essential to success.
Run a tight ship.
Know where every penny is coming from.
Know where every penny is going.
And, just as important, know when.
T. Harv Eker said once that most businesses fail not because of lack of capital but because their isn’t accessible to them at the time that their creditors start calling (paraphrasing here).
The same is true for you.
If you have money in the form of your salary, then that’s all well and good.
But if you need to pay a creditor today and your salary isn’t coming until 2 weeks from now, that’s no use, isn’t it?
You’d either have to borrow more money to cover the payment for this bill – and most likely, accrue interest.
Or, you’ll need to phone said creditor and negotiate the payment, which they might allow, provided you pay a penalty (often called an admin fee or a late fee).
Trust us, we have personal experience with this stuff.
Get a solid personal financial plan in place.
And there is no better time to start than now, right before the New Year starts.
Why is personal financial planning important?
So, why exactly is personal finance planning important?
To quote the late Jim Rohn, whose words we freely admit to quoting rather frequently in this blog, “Make sure you got your economics well-planned. Economics plays a major role in everybody’s life. Economics is major, which means it ought to be meticulously well-planned for tomorrow, this week, this month, this year, long range… Make sure you’ve got your economics well-planned. It will put you in the top 5%.”
In other words, you deal with money and need it not only to survive but also thrive – just like everyone else.
So, why is learning about money important? More specifically, exactly why is managing money important in your personal life?
Because money can absolutely tear you down. Or it can build you up.
It all depends on you.
So, you need to have it firmly in hand.
Erase the words, “I don’t know where it all goes,” from your vocabulary.
There are some things you just need to know.
And as I wrote in the previous section, you need to know this.
Benefits of personal financial planning
There are so many benefits of personal financial planning that it amazes me how very few people actually get taught it.
In fact, I don’t recall ever attending a financial class to help me with that subject and I’ve attended some pretty prestigious universities in my time.
Why is this not part of a school’s core curriculum?
I don’t honestly know.
And it’s a shame.
I think as it’s such a huge part of life and can have both a positive and negative effect, we should all be well-versed in the subject. Not only that, but we should all be taught how to handle it at an early age.
Being advised to make sure that I save money doesn’t really help much if I don’t know how to track it, how to save it, how much etc. etc.
Anyway, after 3 decades of financial mistakes galore, I’ve finally come out the other side – bloody but unbowed.
Here are some of the top benefits of personal financial planning that I really wish I’d known whilst I was a lot younger.
There is nothing worse than the feeling of uncertainty that comes from a sense of impending doom. And that sense of impending doom only happens when you know that you have a lot of debts but you’re not sure if you have enough money to cover them.
Know what I mean?
When you have a solid financial plan that you commit to following (and which you actually do follow), you know what’s going on and you can take action, if needed.
Or breathe easy and enjoy life knowing that you’ve got it covered.
Also, you’ll rest easy knowing that when the time comes for you to retire, you have the resources to ensure that you’re able to live the lifestyle you desire.
Imagine being homeless or having to pay for a a huge emergency just when you no longer have a job to support yourself.
Can you imagine how it would be to know that you won’t be getting a monthly salary anymore and you are solely reliant on one?
A financial plan will have covered your needs for the future – both emergencies and your daily maintenance. And give you security and peace.
Peace of mind – what would you pay for it?
Greater Financial Understanding
The more you work with money, the more you’ll understand it.
You’ll begin to realise how to handle it, what you need to do to improve your cash flow and make sure that most of it goes into your account rather than out of it.
It stops becoming this terrifying thing that you can’t control and instead begins to be a great source of contentment and even peace.
Peace of mind, remember?
There is a certain feeling of bliss when you don’t have to worry about coming up with the money to pay for your bill, your next meal or the roof over your head.
Sounds fab, right?
There are a few ways that a good financial plan can bring you more money and all of them are based on the fact that you now have knowledge of where your money lies and what you actually do with it.
I mean, how many of us actually know what we’re doing with our finances?
Ever heard someone say, “I don’t know where it all goes.”? Or “It’s here one moment and gone the next.”?
Statements like these seem pretty harmless because most people say them but the truth is that they show how highly unlikely you’ll reach financial independence (and could possibly end up financially ruined instead).
You need to know (I keep saying that, don’t I?).
So, make it a point of study.
That way you’ll enjoy more money courtesy of the following benefits of good financial planning.
Improved cash flow
When you’re monitoring your spending patterns and the nature of these expenses, you’ll automatically want to do better.
If you can see that you’re spending £50 a month on something you don’t even need and didn’t realise you were spending money on (like that scratch card you faithfully buy every single day), you’ll automatically take action.
One time, I happen to be combing through our bank account statements in preparation for my visa application when I realised that we were being charged twice by a mobile phone company. And this went on for nearly two years.
I contacted them and got a refund to the tune of £1,500 because of a fraudulent phone contract.
We never really looked at our bank statement before then and because one of us used the company and the charges came at separate times (which didn’t matter since we never checked), we never realised that we were spending so much money.
Lucky for us, we got the money back but only after negotiating for months and finally, reporting them to The Ombudsman.
So, check, check, check your accounts.
Go over your financial statement.
You might be surprised.
A good financial planning strategy doesn’t just look at your budget and spending. According to Thrive Global, it also tackles such things as “investment planning, risk management, liquidity management, liability management and goal planning”.
In other words, you’ll be able to improve the return on investment (ROI) on your portfolio if you pay attention to what you’re doing with your money right now and act on it.
For example, if you can remove that £50 unnecessary spending per month that you have and invest it in your own business (I recommend a blog), you’d be a lot better off in 5 years than if you’d just gone along with your usual tactic.
Improved risk management
I heard someone once say that no one who has ever needed insurance regretted getting it.
And it’s true.
No one ever wants to have bad things happen to them but they do.
No one can predict if emergencies will happen to you. They may or they may not.
You can very well decide not to plan for emergencies and be fortunate enough not to have those emergencies happen to you.
But if they do happen and you don’t have protection, the results can be devastating.
For that alone, we need to have insurance.
The problem is, there are as many insurance policies and insurance policy providers as there are disasters to insure against.
This is where a solid financial plan can help.
Once you have it in place, you can take in – just by studying your financial plan – what kind of insurance coverage you actually require.
That means you can avoid both overpaying for any unnecessary insurance and not getting the required cover.
Financial planning tips for the New Year
Now that we’re gearing up for Christmas, which I’m sure will come far too soon for our liking, many of us automatically start thinking about the possibility of making a change in our lives come the New Year.
Yep, it’s the time of the year when many start making New Year’s Resolutions. Or at the very least, making small goals that they want to achieve for next year.
Side Note: If this is you, you’re a serial NY resolutions writer or you just want to make sure that the New Year’s Resolutions you make will actually stick this time, read our latest post You Do You Boo: How To Make The Best New Year’s Resolutions List To Help You Live A Blissful Life to get started.
This section talks about the best financial planning tips for the New Year that anyone can follow. And these tips will be broken down into three main categories that are taken from Jim Rohn’s life-changing advice (mentioned above): what could I do, what could I read and who could I ask (or listen to)?
What Could I Do?
For many people who want to change something, the first step is always the hardest in my opinion.
I believe people find it hard, not just because of fear of the unknown (although most of us surely have a healthy dose of that) but also because most people don’t know what the first step should be.
In finance for example, there are so many new terms you need to learn, so many mistakes you could make that could really cost you (including the mistake of inaction, by the way), so many paths you can take.
Where do you even start?
For example, when I decided that I wanted to change my income for the better, I started looking for advice online. I soon found myself drowning in a relentless sea of information. I just didn’t know which advice to take, what to do, where to even start with my goal.
It was sheer luck that I found Jim Rohn, whose opening statement in one of his seminars really caught my attention. According to him, “unless you change who you are, you’ll always have what you got.”
Seeing as I didn’t have much, I was ready for change.
And this section will show you the things I had to do in order to turn my life around.
Side Note: I don’t agree with everything he says but I do agree with a lot of it, especially when it comes to the connection between personal development and financial success. Seeing as he’s achieved both, I think it would be foolish to discount his advice.
Step One: Crunch your numbers and budget well.
This simply means that you need to develop a financial statement.
If you’ve never done it before, you’re probably asking, “What is a financial statement and how do you develop one?“
It’s actually very simple.
You just take a piece of blank paper and draw a line in the middle. On the left side, you list the value of all your assets (everything you’ve got in terms of worth) and on the right side, you list the value of all your liabilities (everything you owe).
You then add up all your assets. Add up all your liabilities.
Subtract one from the other and you have your net worth.
If, like me, you need to see something before you can replicate it, some samples are available on Accounting For Management.
Developing a financial statement is super important but most people miss this step and usually go straight to trying to save.
That’s like starting with Step B rather than Step A. It doesn’t work well.
Why exactly do you need to crunch your numbers?
So you have a baseline.
Or to use Jim Rohn’s own words, so you can “take a picture of where you are” and allow you to get to the truth.
You need to know where your money is going and what you can actually afford.
This knowledge then will allow you to develop a budget that actually works.
Speaking of budgets, do you know why many of them don’t work? You know, aside from not knowing where you truly stand financially?
The truth is, most budgets don’t work because they usually do not give you a big enough picture of what’s going to happen.
For example, they often exclude big, one-off spends like a holiday or Christmas.
When we finally completed our budget, we immediately found what the problem was: we were overspending even when we weren’t on holiday!
We were paying nearly £90 for mobile and £400 on food per calendar month alone. Now, we know the answer to our very puzzling question: where the heck was all our money going?
Well, thanks to the budget planner, we got the answer and were able to mitigate what would’ve been a major financial disaster for our family.
The same could be true for you.
You could start your financial freedom journey with the truth and get to that truth by committing to paper all your assets and all your liabilities, getting your net worth and then creating a budget that reflects all this information.
And in doing so, change the direction of your life.
Side Note: Be warned. If you’re doing this exercise because your finances are in dire straits, then seeing the true picture of where you are in black and white could feel like a stinging slap in the face.
It will not be pretty.
And it definitely will not feel good. At all.
At least, at first.
But the silver lining in this scenario (and there will always be a silver lining) is that now that you know where you’re at, you can make a plan to change direction. You can check for any errors and make the necessary corrections.
You don’t have to keep doing what you’ve been doing that has got you nowhere in the past.
You can change.
And that is something to celebrate.
Step Two: Pay Yourself First (AKA Save).
What’s your next step once you have all the information?
Pay yourself first.
Yes, this step is two actions in one.
This financial secret to getting rich comes from the classic book, The Richest Man in Babylon by George S. Clason.
You need to modify this classic advice a little bit in today’s climate of huge credit debts.
If this is where you find yourself – neck deep in debts that tighten the noose around your neck because of their insanely high interest rates, then forget about saving for now and pay the debt first.
Financial experts say that it’s better to use your savings to clear off debt first because the interest rates for savings account are at an all-time low.
MSE’s Martin Lewis actually keeps reminding people that it would be better to reduce debt first before saving money.
That said, IF you don’t have any debts or if the interest rates in your savings account exceed your debts’ interest rates, then of course, you MUST pay yourself first.
According to The Richest Man in Babylon, the money you set aside for yourself must be no less than 10% and should never be spent until you are financially free (ie. your money makes enough money to support the lifestyle you choose without you having to trade your time).
Even then, you’re only supposed to spend the interest. Never the principal.
This is your ticket to wealth.
Step Three: Reduce Your Spending.
Once you know where your money is going and how much you can comfortably afford without wrecking your future, it’s now time to take assertive action.
As we said above, we
Luckily, our mobile contracts were ready to be upgraded, so we upgraded to sim-only deals instead of buying new phones and paying them off every month. Now we only pay £27 in total every month, instead of £90.
We implemented a shopping ban that included takeaway so we could keep to our monthly food budget of £80.
Most importantly, we started implementing the Debt Avalanche Method to tackle our credit card debts so we have an even clearer plan of action.
Step Four: Increase Your Income.
There are so many things you can do alongside your full-time job that can increase the money you have available. This is very helpful if, like us, you are relying on one stable full-time income.
You can take an inventory of things you don’t need or use but are still in good condition and sell them. We found Facebook Market and trusty eBay really useful in this case.
You could get a part-time job – the holidays are a usually a really good time to do it as most companies, especially those in retail, will be hiring temporary festive staff.
There are also side-hustles galore everywhere. We’ve had much success from things like blogging, affiliate marketing, freelance writing, mystery shopping (we use MarketForce), cashbacks (like Kidstart) and referrals (like Guestready and Gousto).
Step Five: Throw Money At Existing Debts Like There’s No Tomorrow.
At the end of the month, we now have a good few hundred pounds left (we’re not in the red anymore, yay!) and we use those to pay off our debts with the highest interest first, freeing up more of our money and drastically reducing our spending.
Use whatever spare money you have to pay off any existing debts.
Good for you!
It’s now time to increase the 10% you save for your financial freedom.
What Could I Read? And Who Could I Ask (or Listen To)?
We’ve lumped these two together because great advice can come from anywhere and most people we would like to ask have either written books or websites, are inspirational speakers whose seminars are available online or are already gone.
You probably have other people (financial advisors) or resources (financial classes or books) in mind but these are our top four.
Essentially, Ultimate Bundles are a collection of e-books, courses, and resources that you can buy together for a discounted price.
If you were to buy each item in a single bundle, you’d probably have to pay over $1,000.
Obviously, we don’t want that.
So, if you’re planning on seriously studying your finances and prevent ever getting into scrapes again, we highly recommend purchasing Ultimate Bundles’ Master Your Money Super Bundle 2019.
Save yourself a tonne of money whilst still getting the answers you need to every single question you may have.
Jim Rohn was an American author, entrepreneur and motivational speaker.
We won’t get to ask him any questions as he passed away in 2009 BUT we can read and listen to his work again and again.
If you haven’t yet, we highly recommend tuning in to a few of Jim Rohn’s talks on YouTube. What he said then is as true today as it was decades ago.
If you are serious about studying Jim Rohn’s philosophy, we highly recommend taking one of his classes that are available online. We are currently enrolled in his One Year Success Plan and it is phenomenal.
We really wish he were still alive today.
Jim Rohn credited George S. Clason’s book, The Richest Man in Babylon, as the book that changed his philosophy. So, we went and bought it (and we had to buy it because it wasn’t in the local library) and we have to say that it also revolutionised our thinking.
If you can only ready one book on finance, let this one be it.
It’s cheap (free, if you have it in your library).
It’s a very simple book, short and easy to understand. Set in Babylon, each chapter contains a series of parables that talks about the unchanging principles of wealth and abundance.
Have questions on exactly what to do with your money? This book will likely have the answer.
For a more modern take on personal finance, we highly recommend Martin Lewis. The video below is of him talking about debt problems, where to start and what to do about them.
His main audience is the UK but most of what he says will be valid across countries.
As you can see, personal financial development is crucial to a blissful life.
In order to succeed at this, you need to follow an effective plan that contains a few simple disciplines you can practise every day.
It is our hope that you can use these tips to create a financial plan that you can implement easily so that you too can get your own financial life in order.
Most of the steps seem common sense but if you’re anything like us, you might realise that you haven’t really had much financial education.
Seriously, apart from we have to save our money, we don’t really know much.
How much should we save per month?
Where should all this saved money go?
What should we be aiming for?
Wealthy people talk about portfolios all the time, what the heck are those?
What about you?
How was this year for you?
Did you also end up thinking, we need to do something about this money situation? How did you get or keep your finances in order?
Is a money makeover part of your New Year, New You Resolution?
Pop your insights in the comments section below and share your tips and hacks. We’d love to hear from you. 🙂