Taking the Next Step with your Finances
For several years now, my wife and I have been doing well with our finances. I haven’t used a credit card since 2006 or so, and my wife only has a Kohls card so she can get deals on clothes (she pays off the balance at the register immediately after using the card to buy the stuff). We were completely debt free until we moved and upgraded in house this year, but we still have a very small mortgage (under $65k).
We do a monthly budget together and always have a plan for the month. We’re pretty good at sticking to the plan each month, too. We have money set aside for emergencies, we give 10% of our income to church and other charities, and we invest 15% of our income for retirement. By most standards, we’re doing very well.
What Comes After Reaching Debt Freedom?
But there has been something missing in our financial plan for a while. We’ve gotten really good at the short-term and mid-term financial planning, but we haven’t done a good job at looking out more than a few months at a time. That would be fine if we were trying to get out of debt or stabilize our financial situation, but we’re way past that. We needed to start planning for the more distant future.
So we started working on our strategic financial plan. We recognized that this should include more than just a few financial goals and targets. We wanted to take some time and plan our family’s future. Financial planning is just a small piece of the overall picture.
Family Core Values
We started by identifying our family’s core values. We thought that was important because as we started identifying goals for the future, we wanted those goals to be consistent with who we truly were. Far too often, people spend much of their lives chasing dreams and goals that end up not being in sync with their core values and beliefs. It’s important to us to make sure our goals support our values, rather than force us to change in order to hit those goals.
We then planned out a 10 year vision, 3 year picture, and 1 year plan. Each of these included financial goals, personal goals, and a description of what we want our lives to look like at the end of each of those time periods.
The ten-year vision was hard for us. In almost 15 years of marriage, we had never really sat down together and talked about specific goals. Sure, we had educational goals and lofty visions like retiring in the mountains, getting rich, etc. But we never put specific qualifiers on any of those dreams. Nor did we put a timeline on any of them.
So we set a 10-year goal for our retirement accounts, our kids’ college investments, our mortgage balance (or lack thereof), and even our income. We then set personal goals for how we wanted things to be as a family. I also had the personal goal of finishing my master’s degree in Business Administration.
As part of the 10-yr vision we also planned out what our vehicular situation will look like. We have two kiddos who will be driving in the next ten years, so we had to think about how we were going to fund their transportation and set them up for their post-high school experiences.
Once the 10-year Vision was set and agreed upon, we then set goals for the next three years. Our 3-year picture included some of the same goals as our 10-year vision. We knew we couldn’t accomplish all the 10 year goals in the first three years, so we picked the ones we thought were reasonably doable and would set us up to later hit that 10-year picture.
The three-year picture is more tangible and easier to qualify in your mind because it’s only three years away. We were able to do some rough numbers and calculate where our retirement and college savings accounts would be in three years. We also knew that we would need to replace our van in the next three years so we calculated how much we would need to save for the next three years to pay cash when we were ready.
We also knew that some other short-term goals would come before we start saving for the new vehicle. These were things that we had been putting off for the last few years when I was self-employed. Included in this list was a new bedroom suite, dining room suite, and a family vacation. We figured out how much we wanted to spend on these items and prioritized which ones came first.
Here’s where the rubber meets the road. We picked the things that we knew had to be done in the next 12 months and figured out how much needed to be added to our monthly budget to get those accomplished. Included in this list was me finishing school, a new camera for the wife, repairs to our deck, and the dining room suite mentioned in the 3-year picture. We also added some window treatments and paint for the new house.
These 12-month goals are all worked into the budget and we identified which ones will be done in the next 90 days. At the end of that 90 days we will review the plan and revise it for the next 90 days. At the end of the year we will compare what actually happened with what was supposed to happen. We’ll then go through the whole planning process again. We’ll make revisions to the 10-year vision, three-year picture, and create a new 1-year plan.
Time to Retreat!
This all sounds easy in principle but it sure wasn’t easy for us. It’s something new, so we struggled a bit like we did when we hammered out or first joint budget together. We knew we needed time alone with no distractions to do this, so we scheduled a couple of days alone and sent the kids off to visit my sister. That helped us focus on our future and reconnect a little. It also afforded us some time to take a break when we needed to. That way we didn’t strangle each other in the process!
We actually talked about doing a retreat at a nice resort but we just couldn’t bring ourselves to spend the money. Too many things we need to budget for, as you can see above! So we just stayed home and enjoyed the time we had together between planning sessions.
Creating our long-term strategic family plan helped provide clarity to our goals and dreams. Before we planned things out, we just kept talking about things that would happen “some day”. After planning things, we realized not everything was as doable as we thought. So we had to make some adjustments to the plan and weed out some things that weren’t as important.
The good news is we now know what to expect and when. And we agree on the priorities for each one. That, to me, is the biggest benefit of the whole process.
Has your family done a strategic plan? Was it hard to do? What was the biggest benefit you saw from making your long-range plan?