Three Steps to the Right Financial Plan for You

Often times I am asked “what is the best financial plan?”  I always struggle with a basic answer because I firmly believe that every person’s ideal financial plan is different.  We all have different personalities, risk tolerances, financial circumstances and needs.  Just because I love equity mutual funds, investing on my own and reading lot and lots of reports does not mean you will love those things.  Maybe you love real estate, stocks and angel investing instead.

This leads to the question “if there is not one perfect financial plan then how do I know what is right for me”?  In one word:


I tell my son all the time that he won’t know if he likes a food until he tries it out.  The same goes with money.  You can study all you want but until you try you won’t know!

I love experimenting with new money concepts so the following are the steps that I use to figure out if an investing, savings or other money idea is right for me.  (Warning, new money concepts don’t apply to money basics such as budgeting and emergency funds.)

Select Your Desired Topic

First off determine what financial tool you want to explore more for your plan.  One of my most recent experiments was with ETF’s (Exchange Traded Funds).  I had a growing interest in how to use these in a portfolio.  ETF’s first hit the US markets in 1993 and were mainly targeted to institutions, so they were not part of my undergraduate education.  So I knew I wanted to spend more time on them to see if they were a fit for me.  (Side note: I usually have more than one experiments going on at a time so don’t feel like you can only select one topic at a time).

Educate Yourself & Decide

Before you try anything you have never used I recommend you gain as much understanding as possible about that item.  Read books, magazines, newsletters, and talk to people that have experience – really anything that will allow you to expand your financial literacy.  Once you have educated yourself on the financial tool it is then time for you to decide if it is something you want to put your money into.

Questions you can ask to help you decide:

  • Do you like the advantages enough to override the negatives?
  • Is it something that you want to put your money into? (Just because you like an investment does not mean that you want to put your money there.  I think options are great, but don’t have money there right now).
  • Do you need to do more research?  I spent almost six months watching ETF’s before I made the leap with my money, don’t rush the decision if you are not ready.
  • Can I implement this is small steps?  This might make you feel better about taking the first step.  If you are able to start at $25 a month vs. a lump sum of $75,000 might make you more comfortable.
  • Will the chance it does not work out create financial hardship?  If an investment goes wrong you don’t want to lose everything so make sure that you are not overstepping financial basics such as spending more than you make and over leveraging.
  • Is it an option down the road but not at this time?
  • Do I have the time to manage this today?

When learning about ETF’s I read all the articles I could get a hold of, subscribed to the Morningstar ETF newsletter (you can find their newsletters by going to sitemap and then to products)  and asked others what their experience was with them.  Based on this research I determined that I wanted to give them a try.

You may discover after researching that it is not right for you.  This happened to me with real estate, while I liked some of its benefits I determined that it was not a good fit for my personality and it definitely was not the right time for me to give it a try.

Implement & Evaluate

Once you know that you want to move forward you can begin to implement.  With ETF’s I selected my favorite one and placed a small investment in it.  For the next few months I just watched how it interacted with my portfolio and how I reacted to it emotionally.

Finally you want to take a look at the results of your experiment.  Did you enjoy it?  Did it meet your risk tolerance?  Do you want to add more money to continue the experiment?  Take the time to really analyze how you felt about everything so that you can learn more about you and your money management style.

For example I learned about ETF’s that I liked them for my index fund investing.  I did not like that I don’t get my dividends automatically reinvested.  I did like the low fees.  In my opinion they are not good for any automatic investment program unless you are investing large sums of money.  I decided that they will continue to be a part of my investing.

Now you know how to determine what the right financial plans are for you and your life – not someone else’s life!

You May also like: Are Mutual Funds or Stocks Better for You

Robin Applegarth says August 22, 2012

Good advice Andrea! I shared your blog on FB and Twitter today. Investing should be personalized to better reach ones’ goals in a way that reflects our own skills and strengths.

    Andrea says August 24, 2012

    @Robin Thank you for the share!

Jennifer says August 25, 2012

Exclusive piece of content Andrea….If one intends to go for an accurate financial plan, he needs to maintain a strict budget at the very first place. Other than that, saving in two general pots, banishing consumer debt as well setting up an attack plan are also very important for sketching out a proper plan. Enjoyed reading every bit of it.. Jennifer Goldblum

Shawn James @ PipsToday says May 15, 2013

I totally agree that every individual and every family has a different financial planning requirement, but the basics remains the same. Its possible to follow some basic points discussed above and have a better financial structure.

Comments are closed