There are seven steps to the process of financial planning, though many on this subject say there are six.
- The first step involves the realization that you need a financial plan, deciding to create your financial plan, and then imagining yourself with the financial plan. The time to move this process segment varies from individual to individual. If you haven’t created a financial plan in the past, today is the perfect day to start the process.
- The Second step is to determine where you are financially. It would do you little good to create your plan with a budget of $100,000 if your income is $50,000. Determine where you’re at while keeping where you’re going in focus. Write out your assets and your debts. Look at where you may be able to do better.
- Step three involves looking at where you are at and then determining your financial goals. This process will help you separate your wants from your needs. (Need) You may need a car to get to work on time; (want) does it have to be a new BMW sportscar? This goal-setting process is personal to you. No one can justify setting your financial goals but you. You alone know your priorities, and thus you alone which goals to pursue.
- Step Four is simply identifying and alternative course of action. Going back to the need of a car example the person could do several things in this situation:
- Go ahead and purchase the BMW and live out of it. (Continue)
- They might choose to purchase a used BMW. (Expand their criteria)
- This individual may decide they will buy a older car that will get them to and from work and save money to be able to purchase the new BMW in a few years with having to pay interest on a loan. (Change their situation of needing a loan)
- The person may spot a Dodge Hellcat on the way and decide they no long want a BMW. (Develop a new course of action to acquire a new goal.)
Credited old telephone free photo by asb
For examples of considering the alternative, I use the historical account of Alexander Gram Bell. There are tales Mr. Bell was not trying to invent the Telephone, but I do not believe that is reliable. However, there are some interesting facts in the account. Mr. Bell’s wife was indeed deaf. It is also true the Bell family had been working with the deaf for multiple generations to teach the deaf to speak. His two brothers died of tuberculosis, and the family left Scotland and settled in Canada; later, they left Canada to settle in Boston. In fact, working with the deaf was Bell’s primary source of income for most of his life. Still, he perused the alternatives. Bell believed he could make speech travel through a wire. Yet he worked on improving the telegraph. He talked to his father-in-law (Gardiner Greene Hubbard) and was given the backing to further his search for improving the telegraph. His harmonic telegraph allowed multiple sounds of different pitches to travel simultaneously on the same wire. Bell’s father-in-law, a wealthy lawyer, gave him the funding needed to continue his research, which permitted Bell to pursue an alternative means of communication: the Telephone. Hubbard saw that Bell’s invention would help break up the Western Union Telegraph Company’s monopoly; again, Bell perused an alternative method for breaking it up. While backed by Hubbard Bell and his employee Thomas Watson, he secretively worked on the Telephone. However, he did tell Joseph Henery, the director of the Smithsonian Institution at the time of his work, on the Telephone. From Henery, he received much encouragement to continue his work.
On June 2 1875 the two men discovered that sound could be transmitted over a wire, yes, it is said to have been an accident. But that would not have been the first thing man had discovered by accident nor would it be the last. As Watson lessened a reed which was wound about a transmitter, he plucked it and the vibration traveled through the wire into the room where Bell was working. That sound Bell heard excited him and they continued working on their prototype into the next year. Until one fate filled day when Bell uttered “Mr. Watson, Come here-I want to see you.”
But there was also another alternative to the telephone. In 1870 Alexander Gram Bell and Elisha Gray had been working independently on their devices to transmit speech electronically. Both men finished their work near the same time. Yet both rushed their prototypes to the patent office within hours of one another. Because Bell had patented his first and later won the legal dispute few know of Gray.
Bell was an inventor. He had invented several things during the course of his life but he rushed his prototype over. He did not take his time to do it in his spare time because Bell knew spare time is a myth.
He took it over and because of that He won the race to create the alternative to break up the monopoly held by the Western Union Telegraph Company. He did this as an alternative to the work he was receiving fund for from Hubbard.
All that show that the alternatives sometimes are the direction we need to take.
Step five is to evaluate your risk and the time value of money. Bell understood the risk of being his secretly working on his telephone being discovered. Why he didn’t share this fact with Hubbard we don’t know, maybe he felt that Hubbard would want to pay him for inventing something that would replace the invention he was backing. What we do know that Bell kept his telephone work secret for the most part. There was a risk of being second. Mr. Gray is all but forgotten in history.
Concerning the time value of Money. It may have been the pursuit of money which helped him to rush his prototype over to the patent office. It was his rushing it over which has permitted his name to go down in history as the inventor of the telephone. Money today is worth more than money tomorrow.
Step six is to create and then implement your financial plan. It would be nice to be able to tell you that once your plan is created that your financial worries are over things fall into place in accordance with your financial Plan. That isn’t so you have to implement your plan. You have to make the decision to stick withing the plan you worked out. Have you ever noticed how the smaller the dollar bills we carry the faster we spend them. It is so easy to spend a dollar on this or that but as the value of the things we are considering rises so does our resistance to giving up our income. Be careful not to sell yourself short and settle for things out of order. Create your financial security first then go back and pick up the little things you always though you wanted. If you do Their opportunity costs will not be as great of a percentage of your income.
The seventh and final step is constantly review and revise your plan. There are internal and external forces at play here. A person at 50 doesn’t have the same needs as a person at 20. AS your desires adjust revise your plan. Also, things become obsolete. Most adults have a phone, many of us carry it with us everywhere we go. Mr. Bell most likely did not see this transaction happening. Because of technology sometimes our wants change. Sometime our needs change because of so many people acquiring their wants. You have to adapt you plan.
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