11 Steps To Financial Freedom – Step 11: Create Your Final Plan

We achieved one of our financial goals earlier this summer; building a house that we could call home for the next 20+ years.  For over two years we directed most of our savings towards that goal and, after moving in and getting settled, we felt like we needed to get started on a new financial plan to help set us on the right path for the future.

I used the steps found in this MoneySense magazine article to launch our new financial plan, and for the past 10 weeks I have completed each of the steps outlined in the article and shared them on this blog.  The intention was to create a complete financial plan by the end of the series, and I think we’ve done just that.

Create Your Final Plan

The best part about writing this series was that each of the steps required us to take action in order to complete our financial plan.  Most of the actions were for things that are easily put off for another day, but because I was writing the series I felt an obligation to get everything done.

Our plan starts with taking care of some short term financial obligations:

  • Landscaping and fence – $2,500
  • Student loan – $3,500 (paid off this month!)
  • New (used) car – $10,000

Then we listed our top 3 financial goals:

  • Take a 4 week trip to Ireland within 8 years
  • Pay off our mortgage in 15 years
  • Retire by age 55

Using a basic statement of assets and liabilities, we showed a current net worth of $184,175.  After all of the bills are paid, we have a monthly cash surplus of $2,050.  We’ve agreed to earmark that money each year for our financial goals in the following ways:

I have updated my life insurance policy by purchasing an additional $500,000 in coverage through my group plan at work.  My monthly insurance premiums now costs me $43 per month for a total of $750,000 in coverage.  We met with a lawyer last week to create our will and to set-up our powers of attorney.  It cost $400 to have a lawyer prepare our will.

Next, I created an investment policy statement:

To maintain a portfolio consisting of 90% equities and 10% cash, with the equity portion made up entirely of dividend growth stocks.  I will purchase stocks when they are value-priced and hold them for the long term.  Dividends will not be automatically re-invested, they will accumulate in a cash account along with any new money added, until the right buying opportunity comes along.  Individual stocks will not be sold unless the dividend is reduced, the dividend pay-out ratio becomes too high, or the company is no longer focused on growing their dividend.

The expected annual returns for this portfolio are between 6% to 8% per year, with individual stocks maintaining a similar 5-year rate of dividend growth.  The time horizon is 23 years until I reach my goal of retiring at age 55.  I fully expect volatility in this portfolio and I am prepared to withstand losses of up to 20% in any given year.

Our Complete Financial Plan

I feel like we accomplished a lot over the past 10 weeks; now we have a complete financial plan to guide us into the future.  If our goals change, or if our financial picture changes, we can make simple modifications to this plan and keep going forward.

We have made a commitment to stick to this plan and to review it once a year.  Should any major event occurs in our lives, we will make the appropriate adjustments to our plan.  It helps to know that our path to financial freedom is laid out in front of us.


7 Responses to 11 Steps To Financial Freedom – Step 11: Create Your Final Plan

  1. I applaud you for having such a detailed and thoughtful investment policy statement. However I think you should reevaluate a 90% equities position. Studies show you make VERY little less return for significantly less risk by lowering that allocation from 90% to 80,70,60,or even 50!! Also being willing to accept a 20% drawdawn is inconsistent with a 90% equities position. A 50% drawdown is probable once or twice in a 23 year period.

  2. Congratulations Robb for sharing this intimate and very important process with your readers. It’s sometimes difficult to come up with fresh material to inspire your readers with, but by taking a step by step approach to your finances, you broke it down into a doable process.

    This series of blog posts will be the gold standard for people (and fellow bloggers) to refer to not only now but in future years.

    As you know, most people only pay lip service to the notion of a financial plan – and still will even after they read these posts – but if you can convert even a few people, you will have begun your legacy.

    I can see how this series could evolve to actual case studies of real life families embracing the eleven step process, highlighting their unique challenges along the way.

    In so doing you might inspire even more people, since alas most people are not in a position to park more than $2,000 excess income each month – and therefore may not be able to relate to your plan as well as say someone who is struggling from paycheck to paycheck.

    Job well done sir!

  3. “I fully expect volatility in this portfolio and I am prepared to withstand losses of up to 20% in any given year.” What will you do when you are down 21%?
    Sell? Hold? Buy on this big dip?
    What if your portfolio continues to drop, and is now down 25%; what will you do?
    I believe that has to be considered in your investment policy statement.

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