For any activity I am considering engaging in, the first question I ask is about value.  Value is a measure which considers both the associated effort and benefit.

Let’s say you are planning to spend days researching the best route to drive to work.  This entails determining what the route options are, than trying them out, timing them, maybe trying and comparing them during your leisure hours.   The extra trips have a gas cost associated with them.  In the end you may find the difference in travel time and gas costs between the four routes you found is a maximum time saving of less than 5 minutes.  Also the difference in gas cost negligible and the stress in rush hour is about the same for each route.   I would classify this route planning exercise as low value, the effort to develop the plan is not justified by the benefit.

Unfortunately sometimes it’s much easier to gauge value with hindsight than foresight (just an observation at this point).

This value discussion is relevant mainly because financial planning  is usually considered by most to be high effort and hard to do (often people hire others to do it for them).  While the effort is perceived to be hard the benefits are long term and usually not immediately tangible.    This thinking often leads to the conclusion that the exercise is of lower value,  not worth doing now, maybe later.

Money and Lifestyles

Financial planning is an ongoing exercise covering a lifetime or at least to retirement.   Plans that are developed should be flexible and need to change with your circumstances,  The objective is to enable your personal lifestyle to meet your expectations.

The Price of Entry

Data!  Building a financial plan, monitoring and updating it are 100% dependent on the historical data.  First and most important answer the question, what are you spending your money on?  Spending and saving objectives are the predictive part of the plan and frankly just gazing into a crystal ball to make predictions generally does not work.

The planning exercise starts with capturing and documenting your spending patterns over a reasonable period (at least one year).

You can use this historic spending to help predict future spending.  This includes saving plans and investing returns.   Then keep tracking ongoing to see how you are mapping to your predictions.

If your predictions are not going to achieve your goals short and long term using the past spending patterns and personal lifestyle behavior analysis to determine how you can achieve what you seek.

The bottom line

In future posts I will be exploring financial planning activities in more specific detail.  Basically a simple “how-to” primer is to come.   The purpose of this post was set the basic principles plant the idea that the planning effort might well be worth it – i.e,  high value overall.