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The Financial Planning Process

"You've got to be careful if you don't know where you're going 'cause you might not get there!"— Yogi Berra

The objective of a financial plan is to help you identify your financial goals and then prioritize them. A good plan lays out each of your financial needs and lets you look at them all together. That way, you can allocate your resources to where they are most needed. For example, if education is more important than the size of the house you live in, then you should fund education first and a home purchase second.

Client Centered

This is actually the reverse from what I see with many clients who tend to buy their homes when they first start a family and then find themselves short on funds when kindergarten starts. If you deal with needs one at a time as they arise, it's a pretty good bet that the last ones won't get sufficiently funded, no matter how important they are.

For a few issues, most people can do this in their head or on a yellow pad. But when there are several important and expensive priorities, it becomes necessary to use a more structured approach, hence, the “written financial plan”.

Why do 3% of Harvard MBAs earn ten times as much as the other 97%?

There is a well-known story that in 1979, interviewers studied new graduates from the Harvard's MBA program and found that:

  • 84% had set no specific goals for themselves
  • 13% had goals but they were not written down
  • 3% of the new MBAs had written goals and a plan.

Ten years later, the interviewers again revisited the graduates of the 1979 class. They discovered that:

  • The 13% of the class who had goals were earning, on average, twice as much as the 84% who did not.
  • The 3% who had clear, written goals were earning, on average, ten times as much as the other 97% put together—astonishing! 1

I used to think that was the end of the tale. Plan and succeed! But someone pointed out to me that the 97% know that they should be planning. Why don't they do it? I realized that planning takes effort, commitment and resources, but mostly time. “If you don't have time to write down your goals, where are you going to find the time to accomplish them?”2

So I encourage my clients to plan and I provide a structured process to help get it done. Remember the five “P's”; Proper Planning Prevents Poor Performance. Back >>

1 What They Don't Teach You in the Harvard Business School, by Mark McCormack

2 Sid Savara; http://sidsavara.com/personal-productivity/why-3-of-harvard-mbas-make-ten-times-as-much-as-the-other-97-combined