To Get Rich, Get A Plan!

If you want to turn your financial fantasies into reality, then you need a plan for the years ahead. Here's how to get started.

"Ain't got no place to lay your head

Somebody came and took your bed

Don't worry, be happy

The landlord say your rent is late

He may have to litigate

Don't worry, be happy"

(Don't Worry, Be Happy by Bobby McFerrin, 1988)

According to the government's piggybank, National Savings & Investments (NS&I), we Brits are 'financial fantasists' who fail to plan for the future. Indeed, during its Quarterly Savings Survey, NS&I's uncovered bizarre beliefs and unwarranted optimism among 1,533 adults whom it interviewed last month.

NS&I found that a third of us (33%) are pinning our financial hopes on money that we may never receive. Instead of making a detailed financial plan for the years to come, we gamble with our security by counting on earning more in the future (24%), aiming to borrow whatever we need (5%), or by expecting a windfall or inheritance (4%).

Even worse was the fact that one in seven people (14%) don't even bother to think about their finances. Also, NS&I's survey found that more than half of us have not made any financial plans for the future:

Do you have a financial plan for the future?

As you can see, only one in nine of us have crafted a detailed plan to build a brighter future. The rest neglect their financial security, probably in favour of living for today. What's more, almost two in five (39%) of those people who have firm financial plans have looked ahead only five years into the future.

NS&I found that women put themselves at greater risk than men: more than three in five women (61%) have made no financial arrangements for their future, compared to half (50%) of men. Even more exposed are those who are widowed, divorced and separated: seven in ten (70%) of this group have no financial strategies.

To be blunt, it's not enough to pin your hopes on your future earnings potential because anything could happen to you between now and retirement. For example, an unforeseen event such as an enforced career change, unemployment, an accident, serious illness or even death could destroy for a lengthy period your ability to work.

Alas, many of us simply don't have enough savings to fall back on. NS&I found that one in eight adults (12%) has no savings at all, while just over one in five (21%) has less than £1,000. Nevertheless, only three in ten people (30%) say that they do not have enough put by to cope in a financial emergency.

Mimicking Chance the gardener (played by Peter Sellers in the brilliant 1979 satire Being There), I would argue you should regard your personal finances as a garden. Neglect your garden and you'll cultivate nothing but weeds. Prune and sow sensibly and your garden will bloom and grow -- and you'll reap a rich harvest!

So, if you're one of the 35% of adults who worry about their finances but do nothing about them, then it's time to turn the corner. Start your plan as soon as you can -- the earlier, the better. What's wrong with today?

You may find it helpful to divide your personal finances into five key parts, as follows:

1. Budgeting and spending;

2. Borrowing;

3. Saving;

4. Protection; and

5. Investing and pensions.

In part one, you need to get to grips with your income and outgoings and, by increasing the former and reducing the latter, create as large a monthly surplus as possible. In part two, aim to clear any expensive debts (such as credit cards, personal loans, overdrafts, etc.) as quickly as you can.

In part three, set out to build up a decent cash cushion, say, six to twelve months' living expenses. In part four, take steps to protect yourself, your earning power, your family and your possessions. Finally, in part five, harness the power of British business by investing for superior long-term returns in the stock market. I describe a similar route in more detail in Your Guide To Easy Money.

Of course, getting your plan off the ground is easier said than done, but there's loads of advice and encouragement on The Motley Fool to get you started. For example, in The Secrets Of Financial Success, I encourage Fool readers to aim high, be flexible, do their homework and be patient on the road to riches. In addition, How Much Are You Really Worth? will help with paperwork and number-crunching.

Finally, you don't need to be smart or academically gifted to build greater wealth. All you need to do is to take things one step at a time. As management gurus say, you need to 'eat the elephant one bite at a time'. Furthermore, financial planning doesn't require lots of time and effort -- get the basics right and you can monitor and modify your plans by setting aside just one hour per month.

I'll leave you with some advice attributed to Italian political philosopher Niccolò Machiavelli (1469-1527): "Make no small plans, for they have no power to stir the soul."

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