The Dangers of Hard Work with No Financial Plan
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I come from a long line of hard workers. Nearly everyone in my family, especially my dad’s side, has an incredible work ethic. You’d never be able to call them lazy by any stretch of the imagination. They’re always on the go, and they’re the type of people you can count on when you need help.
HOWEVER, most of them are dead broke. Most are saddled with large debt payments of all kinds, and minimal to non-existent savings accounts. They live paycheck to paycheck, and always have, despite the fact that most of them have always worked well beyond 40 hours a week.
How can they be so diligent in their work ethic and yet still struggle for money? Simple: They have no financial plan.
What is a Personal Financial Plan?
A personal financial plan is different things to different people. In a nutshell, a financial plan is a map or a pathway for your money. How do you get a financial plan? It’s simple, really.
You might identify with the above types of people. We did for years. Both Rick and I have always worked, and worked hard. Even after I became a stay-at-home mom in 2003, I still worked, almost always, at some type of side hustle. Yet we were always broke, and still managed to end up with a massive amount of debt, and it wasn’t due to lavish spending.
It was because we had no financial plan.
Now, before you write me off, know that I am not talking about the type of financial plan you get from the financial advisor down the street. I’m talking about your own personal financial plan.
Three Steps to Creating Your Personal Financial Plan
First, you must determine your monetary goals. Short, medium, and long-range goals. Some ideas? A short-term goal might be to pay off your credit card debt within six months, or save up the money for your kid’s braces in six months. A medium-range goal might be to save cash for a new-to-you car or to pay off a home equity line that’s been hanging over your head. A long-term goal might be to have enough money in your retirement account that you can retire early, pay off your mortgage early, or accumulate enough passive income so that you can quit your day job.
The point is to make sure you have those goals set, and write them down, displaying them prominently, so that you use that list in order to make spending decisions.
The Second part of your personal financial plan is to choose to spend accordingly, prioritizing your income. This means that when you make spending decisions, you make them based on whether or not they are in line with your short, medium and long-term goals. This doesn’t mean that you’re not allowed to have fun anymore – it just means that maybe, instead of ordering pizza three times a week, you order out once a week, putting the extra funds toward your goals. Make sense? It’s not about not having fun, it’s about utilizing your money in the way that’s most important, and most beneficial, to you and/or your family.
Third, and equally as important, you must revisit your goals on a monthly basis. Why?
A) To determine if you are on track to meet those goals
B) To assess whether or not those goals have been met/need to be changed.
If we skip step A, we run the risk of falling back into life with no financial plan. Checking regularly to make sure we’re on track with our plan helps us to see if we need to reign in our spending or make other changes so that we don’t abandon or fail at our plan.
If we skip step B, we run the risk of working for goals that no longer apply or are important to our lives, which will make it easier to get off track.
People with no money and loads of debt often come from long lines of people with no money and loads of debt. Dave Ramsey calls this your “family tree”.
Poor Money Management Can Be Generational
When we first came to the realization that we were carrying a dangerous amount of debt, I thought for a long time about how all of our family members also shared lots of these same struggles, for several generations back. Then we decided that we didn’t want to pass that same heritage down to our own kids and grandkids, so we chose to be different – we chose to make, and stick to, our own personal financial plan, so that money was under our control, instead of the other way around.
You see, all of the hard work in the world, and all of the money in the world, won’t do you a darn bit of good if you have no financial plan. The money will disappear out of your hands like water from a faucet, and you’ll be stuck just as broke as when you first started earning money.
Don’t let that happen to you. Don’t let all of your hard work be for naught because you have no plan. Make a purpose for your money and your life today.
How do you spend your money? Do you evaluate purchase decisions against your financial plan? Does your family?
Photo courtesy of: Kevin Wong