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Prepare Your Personal Financial Freedom Plan

Written by Dian Herdiana on 11:24 AM

Prepare Your Personal Financial Freedom Plan

Your personal financial freedom plan is the bridge to your independence day. It is a personal business plan, that details where you are, where you want to be, and how you intend to get there.

In simple terms, it breaks your goal/dream into small discreet, do-able chunks. Remember the story of how to swallow an elephant...cut it into tiny chewable bits, and chew a piece one at a time.

You can see clearly where you are heading. You have it in the canvass of your mind. You have an idea how to get there. You have have a plan. A plan that does not have components that are executable on a daily basis is as good as useless. That is what your personal financial freedom plan does for you. It reduces the big picture (your elephant) into executable (chewable) chunks.

An Ilustration
Lets take a very simple illustration. Imagine you are 30years old. You want to quit your day job at 55, to go do something with your life. You approach a financial adviser, and after a session or two, you decide you want to take out an annuity that will put in your pocket, $2,000 for the rest of your life.

Using simple interest, and ignoring everyday reality of rate changes, taxes et al, at 5%, the financial adviser told you you need $480,000.00 to swing it.

At 30, you have 20years to independence day, which means you need to save $19,200 a year to hit the magic number at age 55. This translates to $1,600 per month. You may decide to end the break down here, or take it a step further...$54.34 a day.

With these facts and figures, you get your brain to work. How do I save $54.34 a day or $1,600 a month. With your last month's income and expense account, you set to work. You know where your money goes. You decide which item to sacrifice, in order to reach your goal.

With a goal and a plan in place. It is easy to focus. You find it easier to make do with your 3year old automobile, scale down your vacation plans, delay gratification, ignore the Joneses etc. Within your plan are reward mechanisms to reward milestones achieved.

Your savings balance increases steadily, your pay raises etc gets ploughed into the plan. Before long, you are looking at hitting the magic figure at age 50...

There is one heady feeling that comes with it. You are in control of your finances. You decide what goes where.

It's Up to You
This is a very simple ilustration, but holds true for all scenarios. It is possible to make it without a plan clearly spelt out. But for most folks, it helps to have a blueprint.

If you plan to own a business or become an investor, you need to invest in acquiring financial literacy. You will be working with figures. You need to understand the language of those figures, what they mean, the stories they tell...income statements, profit and loss accounts, balance sheets, cash flow, financial ratios etc...

Your destination determines how much you need to learn. If you are like the guy above who is dreaming retiring at the age of 55 with $2,000 a month plus pension, then compound interest will see you home...

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