Back to Basics: Plan, plan, plan

At the beginning of this series, I mentioned that part of the reason for the series was to remind myself of the basics of wise personal finance.  The risk in doing that was that I would run across one (or more) of the basics that I was utterly incompetent in, and would need to write a post on it anyway.

Well, this is one of those basics that I'm really not qualified to write about.  I'm very poor at planning the financial life for me and my family.  I still use The Force for most of our spending, and it's getting harder and harder to get by doing this.  We came really close to needing to carry a balance on our credit card — something I've never had to do before.  Mike from Quest for Four Pillars commented a response to my admission that our six-month car insurance payment was part of the cause for last month's mini-emergency:

This is probably 20/20 hindsight but you should have been able to plan for the insurance payment.

That's exactly right.  I should have been able to plan for these expenses easily, but it takes a level of discipline that I obviously haven't applied to financial planning.  This is pretty reckless, actually, since if no one cares as much about my finances as I do, there's really very little hope of us achieving decent prosperity if I don't care enough to plan.

So, knowing well that I'm talking about stuff that I don't really do myself yet 😉 what things are a necessary component about a financial plan?

• Plan to plan.  This is a bit like meta-planning but developing a plan takes time and this time needs to be set aside more or less without interruption.  This doesn't happen by itself; it must be planned for.  Busyness and an overly complicated schedule make this difficult, so simplifying can make this easier.
• Plan to spend.  This is known as a budget, written down on paper or in a computer.  Budgeting isn't a feeling (like I've done) but an activity.
• Plan for big expenses like a car, education, or a house.  The larger the expense, the more careful the plan.
• Plan to save.  Saving purposefully is essential.  Saving without a purpose increases the likelihood that the money will be tapped into without a real emergency.  Even if the money isn't tapped into, there's no reason to enjoy it later if the saving was all without purpose.
• Plan for marriage.  Getting married was one of my better moves (I'd like to think my wife agrees, but I'll just speak for myself on my own blog 😉 ) and we planned pretty well for the two-lives-become-one part.  Money has probably been the source of half of our disagreements for the past six and a half years.  Planning how both you and your spouse will save and spend is better handled sooner.  I wouldn't think to say that the way your (future) spouse handles money should be a deal-breaker or not, but it probably should be paid attention to.
• Plan for birth.  A child is a big expense (absolutely worth it, though) and this is better planned for.  In the short run children add a lot of stress on a family both emotionally and financially at the same time that they add joy.  Planning to set aside extra money beforehand and planning expenses with the child in mind is a good thing to do.
• Plan for death.  A will or a trust ensures that your assets go where you want, and don't go where you don't want.  Without one or the other, the state decides where these assets go.  Also plan to update these documents as the family makeup changes.
• Plan for the best.  Financial windfalls can come at any time.  Will you use them wisely?  It's more likely that you'll use them wisely if you plan.
• Plan for the worst.  What if you're out of work for six months?  What if you plow into someone with your car and kill them?  What if you get hit with a six-digit medical expense?  What if you can't buy food at the grocery store for a month, or more?  What if we go to war with Iran and gas spikes to $15 per gallon?  Plan for what you can and it will be easier to get through.    
• Plan for retirement.  What will you do?  How much money will you need to retire?  Do you even want to retire?  Can you retire?  Few things require more planning than retirement.

What other components would you put in a financial plan?