Financial Planning: Using Common Sense to Achieve Fiscal Fitness

Imagine a river over which we need to build a bridge at a particular spot.  Two aspects are fundamental to the construction plan:

• The location which decides the kind of bridge that can be built
• The kind of traffic that is expected over the bridge

Almost anyone with inclination can figure this out simply because it boils down to plain old common sense.  Almost everything in life does.

Money is no exception:

• What is financial planning?
• How do I plan my finances to achieve fiscal fitness?

Contrary to what financial experts would have us believe, anyone can answer these questions using plain old common sense, anyone can achieve fiscal fitness.

Since anything worth doing is worth doing well, it would require a little inclination and effort.

So what is financial planning?

Financial planning is an activity that ensures that an individual and his loves ones can face any kind of planned/unplanned expenses at any point in time.  This defines a fiscally fit family.

Unfortunately, most people think that achieving fiscal fitness requires an intimate knowledge of investment options.

Yes, fiscally fit people do have good investing knowledge. However, this is merely because of practice.

Investing knowledge is not required to take control of our finances. All we need is good old common sense.

How do we plan our finances to achieve fiscal fitness?
Financial planning is not very different from building a bridge:

Location of the bridge ←→ Present financial state of the family

Nature of traffic ←→  expenses

Let us ask ourselves the following questions:

1. Can our family handle a medical emergency?
2. Can our family maintain their current lifestyle and our children study what they want to study if we die today?
3. If we lose our job today for whatever reason, how long can our family survive without income?
4. Let us look into the future.  Besides day-to-day expenses, what expenses can we expect, a year from now, 3-5 years from now, 10-15 years from now and beyond that?
5. How are we going to meet these expenses?  How much do we need to invest?  What assumptions do we need to make while planning for these goals?
6. When we retire, can we be financially independent of our children?

These are some of the many questions that we need to ask ourselves to achieve fiscal fitness.

I am sure you will agree that such questions are based on nothing more than commonsense.

To take control of our financial life, we need to ask, answer, and act!

Next Article: Financial Planning: baby steps with perspective