If the purpose of a financial plan is to predict the future for you, I’d say save your money. You’ll do about as well with a monkey throwing darts at some charts.
But if you want to know what the real purpose of a financial plan is, look no further than what happened to the University of Arkansas Razorbacks and the New Orleans Saints football teams a few years ago.
If you aren’t a football fan, here’s a little background on both teams: each had a great season in 2011. And both teams brought most of their key player talent into the 2012 season.
But these teams also share another bit of history in common – both lost their head coach in unrelated scandals during the off season between 2011 and 2012.
Not to worry, fans thought. Each team installed a temporary head coach, retained their key players and anticipated a successful year. Arkansas was 4-8 (one of their eight losses came at the hands of ULM!) and the Saints lost their first four games, finishing 7-9.
The difference between a good season and a disaster? Leadership.
Consultant Bobb Biehl says, “Leadership is knowing WHAT to do next…knowing WHY that is important…and, knowing HOW to bring the appropriate resources to bear on the need at hand.”
A financial plan is really just a personal leadership agenda translated into numbers. Your financial plan should never be just about making more money – it should be a financial roadmap to achieving your life goals.
So, borrowing from Bobb Biehl, do you know what to do next financially? If not, that’s the first step – establish your financial priorities, draft a plan to get there and decide upon a timeline in which to achieve those objectives.
Once you know where you want to go, have you focused sufficiently on why that is important to you? When the going gets tough, you’ll need to be reminded WHY you are asking yourself to do hard things. WHY is always the motivation needed when WHAT gets hard.
Finally, how are you going to bring about the appropriate resources to move towards your goal? This is where the nuts and bolts of a financial plan come in. But keep in mind this is only an effective step AFTER you have answered the WHAT and the WHY questions.
I’m not much good at telling the future, but I will make one prediction – without good leadership in your financial life, you’re likely headed towards a losing season.