11.7: The Financial Plan

Every family needs a \(5,10,15\), and 20 year financial plan. For the most part such a plan focusses on long-term goals while giving you guidelines to follow in the short-term. Answer these simple questions: "What do we need/want to pay for in \(5,10,15\), and 20 years and how do we need to prepare now to accomplish those dreams?" Owning a home, planning for retirement, putting kids through college, life insurance coverage, starting a business, traveling the world, being debt free, and other goals might emerge in the planning process. Once you have these goals typed out for the next two decades you can fit most of your budgeting, saving, and spending activities into them. Remember that the "Rules of Three" suggest not buying in a hurry, and that makes even more sense when you think about the nature of each purchase as it fits into the long-term plan.

Most people don't save. In fact many spend more than they earn and have a balance on their credit cards each month but saving for three months may make the difference between staying afloat and going under if you lose a job, get sick, or have an unexpected crisis that cost too much money for a regular monthly income. Start small with \(\$ 5-10\) per week. Put the money in a savings account that is hard to get to. In other words, consider putting your savings in a credit union or bank separate from the one where you keep your checking account so that you have to go out of the way to get to your savings. If you save \(\$ 10\) per week for a year you have \(\$ 520.00\) saved in just one year. In five years you would have saved \(\$ 2,600.00\). No matter what, don't take out your savings unless it is truely an emergency. Keep it there, let it build up and take it out when nothing else can be done to pay an expense. Use your monthly budget to estimate how much a three-month savings would need to be.

If you are middle class, you can increase your family's net worth by following a few basic principles. First invest low and sell high. Second, consider real estate investments. Third, become a full-on, unabashed cheapskate. Don't ever pay full price for anything. Don't ever sell below the market value. Fourth, don't ever try to do the expert stuff by yourself. It is very easy to get an advisor, read a book, attend a seminar, or get professionals on your team.

Some of us sabotage our own efforts at saving, why? Entitlement is a feeling of wanting something for nothing, of being justified in having one's wants met, and or a feeling of being excluded from the same rules that bind most of the members of society. You may benefit from knowing that the concept of "sense of entitlement" is often associated with addictive behaviors and unhealthy relationship patterns. Entitled people have difficulty discerning the difference between "what I want" and "what I need" when it comes to money. A flat screen TV is owed to them if they want it because they are special and their needs should be met regardless of the finances involved to acquire them. Entitled people feel that it is their right to have what they want. Many of us have feelings of entitlement in some areas of our lives. But when, or if, our pursuit of the things we want interferes with our financial security, moral and ethical propriety, or social responsibilities, this entitlement can become pathological.

In the U.S. especially many people feel entitled when it comes to consumer goods. They feel obligated to buy things that truly fall under the category of wants rather than needs. Many, who lack enough resources will overspend in the process of acquiring things they sometimes feel buyer's remorse over. It is a painful lesson to learn when debt suddenly becomes overbearing. A good policy is to never finance a pizza. Pizzas, movie rentals, new clothes, and other small ticket items add up way too fast and it is unwise to make many small purchases that land you with a pile of debt. Not having family financial guidelines leaves one with no guidance, little direction, and a vulnerability to financial insecurity in the very aggressive market-placebased society that ours has come to be.

When we mispend or manage our finances poorly or in destructive ways we often have legitimate needs but are trying to meet them in the wrong way. Some people shop when they feel lonely. They might also spend money for cruises or fun, but soon find that being with other people is not always the cure for loneliness and that happiness is a choice only they can make for themselves. Others spend to make up to themselves (or their own children) for neglectful, abusive, and traumatic childhood circumstances. Money in this case is used both to medicate the problem (with a cure that doesn't work) and to reinforce their shameful feelings of worthlessness. So if they mispend and mismanage their money, they simultaneously create problems that prove what they've felt all along-they are not worthy of happiness or success.

There are those who put a tremendous amount of energy into looking good, appearing to be wealthy or privileged, or being more sophisticated than they truly are. Some people have a millionaire's taste and a janitor's income. The medicating phenomenon in money mismanagement is similar in many ways to the medicating phenomenon in drug and alcohol abuse. People who hurt try to distract themselves from it by getting a short-term high from their money or spending. They go to Vegas, buy something new, take friends and family out for dinner, and engage in other costly activities that keep them from feeling whatever pain that hurts them.