Beachman's Financial Plan

FinHabits: How I constructed and executed my personal finance plan

This weekend I noticed a significant increase in activity and discussion on several online investing forums that I participate in. A sign of the times - people are worried about their portfolios and looking for answers and information.

However investing successfully is just one component in the larger scheme of one’s personal financial situation. If you lay a good foundation in other aspects of your finances, then weathering stormy market conditions becomes easier. 

About three years ago, I found myself giving my 29-year cousin some financial advice. He asked me several basic questions on how to save, invest etc. Below, is what I shared with him then.

Beachman's financial plan

I have been managing my personal finances since the age of 24. I learned from my father, a few good books, some of my more experienced friends and a constant urge to read, listen and watch informative, educative financial management content. There is a lot of good, free content out there and there certainly is a bunch of crap too. The challenge is finding the nuggets and avoiding the not-so-good stuff. 

I think about my personal finances in terms of the diagram depicted below. I actually drew this on a post-it note for my cousin - He carries it every where in his wallet :-)

Each part of this diagram is important in its own way. It is strongly advised to establish the outer and the lower layers first before taking on a higher layer in the pyramid. This ensures that one has a strong base upon which to build, learn and manage risk.

Many people will skip the foundational elements in the thirst (FOMO) for juicy investing returns. This erodes their ability to handle volatility when it hits their portfolio and they lose sleep at night, they make hasty erroneous choices and may even lose interest and hope. I, too, have made some of these mistakes in my early investing days and lost several thousands of $ making ill-informed decisions. It left me disappointed in myself and I lost interest in taking an active role in my investment for many years. Today, I rue not only those faulty investments, but also the loss of compounding returns if I had not walked away from investing in disgust.

My life goals have always centered around keeping my family safe, healthy and happy, building enough wealth to fund my family’s current and future goals, ensuring our ability to weather a financial storm, if it hits us and creating a financial and legal structure that will continue to serve my family when I die.

Some of the key elements in my financial plan depicted above:

• I track our family finances using Quicken. It creates weekly/monthly habits of logging income and expenses, tracking bills and payments, setting up and sticking to budgets. All these actions result in a deeper awareness of our financial situation at all times.

• Investing in your health is self-explanatory…staying active, working out, eating healthy. Actions that one takes at a younger age will pay dividends later in life as the years take their toll on our bodies.

• Setting up a living will is easy these days. Establishing an estate trust costs a little in legal fees, but tremendously simplifies the process and reduces the cost to your heirs when you pass away. Do it for your loved ones.

• Apart from home and automobile insurance, we have a life insurance policy and an umbrella liability policy in place.

• We have about 3-5 years worth of annual expenses sitting in a savings account that we can dip into if the markets go to shit. This is the best sleep-soundly medicine for an early-retiree like me.

If you are just starting out on this journey, at first glance, it might seem overwhelming…too many things to get in place….so many financial habits to inculcate. I did not do all of this at once. It took many years to establish this plan and its various elements.

So take it one step at a time, figure out your life goals and priorities and make an investment in your family’s future.