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How To Create Your Own Financial Plan. A lesson from the mechanic and the cardiologist

Updated: Jun 4

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Creating and managing a financial plan requires both a measure of skill and art.


The following are the areas we look at when creating, implementing and maintaining our own financial plan and those we help.


The best financial advice is simple, specific, relevant and achievable.


So when creating my own financial plan and helping others, what are the foundational pillars I use to ensure we have the greatest chance of success?


The answer. A combination of both skill and art. Just like a heart surgeon.


The Mechanic and the Heart Surgeon

 

A mechanic was removing a cylinder-head from the motor of a Harley motorcycle when he spotted a well-known cardiologist in his shop.


The cardiologist was there waiting for the service manager to come and take a look at his bike when the mechanic shouted across the garage.


"Hey, Doc, want to take a look at this?"


The cardiologist, a bit surprised, walked over to where the mechanic was working on the motorcycle.


The mechanic straightened up, wiped his hands on a rag and asked, "So Doc, look at this engine. I open its' heart, take the valves out, repair any damage, and then put them back in, and when I finish, it works just like new. So how come I make $39,675 a year and you get the really big bucks ($1,695,759) when you and I are doing basically the same work?"


The cardiologist paused, smiled and leaned over, then whispered to the mechanic.....

"Try doing it with the engine running."


Creating a financial plan is just the beginning, it then requires implementation and then ongoing maintenance mindful of changing personal, economic, legislative, political, tax and environmental micro and macro events. 


The following are some of the everyday checks, balances, research and maintenance to keep our plans in good health and ensuring us the greatest chance of success.


  1. Have access to savings for emergency situations, preferably three months living expenses

  2. Be in an occupation/business that allows you to fund and live your lifestyle aligned to your passion and values.

  3. Pay down your debts at a reasonable speed until you're debt free. If you have any debt at all ensure that it is investment debt i.e. tax deductible; still pay it down at a reasonable pace.

  4. Protect your cash flow/livelihood and assets. Achieved via insurance, contracts, ownership entities/estate, added value etc...

  5. Do not invest for the main benefit being a tax deduction.

  6. Buy and sell for a purpose/reason, not a speculation.

  7. Invest regular savings using the most tax effective vehicles i.e. superannuation, trusts etc...

  8. Reinvest back into your investment. Do this until you require the income from the investment and/or it is enough to meet your cost of living/business operational needs.

  9. Invest in that which will provide ROI (Return on Investment) to meet your cost of living without you losing sleep or experiencing excessive volatility that impedes your lifestyle cash flow.

  10. Invest the majority of your time in things within your control here are some examples (a) Exercise and eat right because it improves health and self esteem, (b) Self education improves career opportunities, (c) Making time for others improves personal relationships, (d) Supporting others who are not as fortunate improves community participation, (e) Spend money on experiences rather than materialistic object, (f) Connect with your soul & nature for enlightened spirit


This post was written by Me, as such they are my personal views and not financial or general advice.


You should always seek independent financial advice when it comes to choices about your personal finances. This is one area of your life where it’s worth paying for it to be done right.



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