Ever since I began plotting my way out of poverty and learning about personal finance – which started more than decade before I even conceived of writing this blog – I regularly came across people with the same goals as I do but were just proceeding without any specific direction. Like me, they wanted to be financially free in a number of years. But unlike me who had a financial blueprint that I implemented, they were “winging it”. It was crazy to me because for something as important as financial freedom, you’d think that people will exert effort to reduce their chances of failure.
I think one contributing factor to this is because for most of us, when thinking and talking about financial goals, we speak in mostly in general terms. For example, we say that:
- in 5 years I want to have XX amount in my investment portfolio,
- or in 10 years I want to be a homeowner in an exclusive subdivision,
- or like me, you want achieve financial independence and early retirement (FIRE)
People have goals, but many fail to assess where they are now, and tackle the bigger question, which is:
I think that it is crucial that we think very hard about this question AT THE BEGINNING OF OUR FINANCIAL JOURNEY. Because, honestly, it will save you a lot of heartaches, frustration, time, and money.
But how do we bridge that huge gap between where we are now and our goals?
In this post, I want to convince you about the importance of following a financial blueprint that will guide you in your financial journey. I will also suggest a couple of personal finance blueprints for you to follow.
What is a blueprint?
First of all, what is a blueprint?
Blueprint is just a fancy way of saying – a very detailed plan.
What come in mind when we refer to blueprints? You need a blueprint when building a house, a ship, or some complicated structure. A blueprint will include detailed plans that will guide every step of the building process and make sure that the final product is not only structurally sound and will be long-lasting, but that it will stand many tests that it will come across – both anticipated and un-.
You might be thinking: “Isn’t that the same as setting my goals? Isn’t setting my goals enough?”
I think of personal finance as building a house. Our goal is to build a nice house, right? But to ensure that this ideal house is built, we need to follow a step by step blueprint that will ensure that our foundations are sound and our walls are sturdy before we proceed to putting in the decor.
To put another way, we won’t build a house with just our ideal house in mind without a detailed plan. That’s a disaster waiting to happen.
It’s the same way with personal finance. It’s important that we don’t just stumble our way into the end goal. We need to have a step by step, detailed plan, so that we can improve our chances of success.
Why you need a financial blueprint?
If like me, you’re an active member of online personal finance discussion spaces – whether on Reddit, Facebook, Discord, wherever – you’ve probably encountered people whose first question upon joining the forum is: “I have extra money (10,000 pesos or 25,000 pesos, etc.) and I want to make it grow. How do I invest in crypto?”
Thankfully, it’s very rare for my readers to send questions similar to this but I think asking about the possibility of growing your money exponentially through cryptocurrency, an investment instrument that many people don’t understand is a symptom that lack of information of where to start and the fear of missing out (FOMO).
I sympathize with those who want to achieve their goals with the least amount of effort, time, and money. I get it. I myself was (and still am) a breadwinner so I get the feeling of wanting to earn as much money as possible, as soon as possible, so that I can feel a sense of security and control. I want to eliminate that fear that only having enough money in my savings account can give.
Here are some reasons why I think we should all have a financial blueprint to guide our journey to freedom:
1. It makes your goals less intimidating.
Having a step by step plan that breaks down each phase of your financial journey makes achieving your big goals less intimidating.
Say, for example, you’re a 30-year-old and currently have negative or zero net worth. You finally decided to hunker down, get your finances in order, and decided that you want to have Php 10 million pesos in net worth by the time you retire at age 60.
You may think that the journey from zero net worth to ten million pesos sounds intimidating and may laughably out of reach at your current financial position. However, that will only be true if you don’t have a detailed, actionable plan to guide you.
The leap from point A to point B will be hard. But if you follow a detailed financial plan, that will break down the problem you are likely to encounter along the way and will take you step by step, the task becomes easier and more doable.
Instead of making 1 giant, scary leap, a blueprint will help you work your way slowly towards a goal and that will increase your chances of success.
Remember that McGyvering your finances by making things up as you go is not a sound plan. Although it might work in the present and in the immediate future, it is unlikely to result in long-term financial success. You will likely going to be prone to be sidetracked and lured by the tantalizing possibility of the latest and shiniest investment that everyone’s talking about. Which leads to my next point.
2. It gives you clarity
A financial blueprint will give you clarity.
Because you will be following a clear and detailed plan on how to achieve your goal, you will less likely to be distracted by the latest investment or money-making scheme everyone is talking about. For example, if you have a blueprint that is based on putting your money in index funds for 20 to 30 years, you will be less likely to invest in an instrument that doesn’t fall into that category. It will be easier for you to sort through the noise and focus on what’s important and have been tested to lead towards financial success for your framework.
You would know where to put your money instead of joining the hype because YOUR PLAN WILL TELL YOU EXACTLY WHAT TO DO.
3. It makes you less susceptible to scams
Most of the people who fall victim to scams are those who have little knowledge about investing, desperate, greedy, and those who are in a hurry and wish to take short cuts to riches. Being vulnerable, desperate, ignorant, and in a rush does not make you a bad person but it does put into the line of sight of evil scammers who are only more than willing to manipulate you and take your money.
If you have a detailed plan that tells you when and where to invest, you would know that there are no short cuts to success. You would know that there is no easy and free money.
Like Frodo said, “short cuts make long delays” or maybe even worse, short cuts can bankrupt you and your family.
You may be thinking that what I’m saying here is nothing new and that everyone should carefully plan to get to the finish line. What I’m saying here are basic information. It is!
Unfortunately, it’s a sad fact that many people confuse their goals with plans. They think that as long as they have goals, they no longer need to draw out plans. I just want to reiterate that goals are not substitute to plans.
Remember that everyone has financial goals. I don’t know anyone who doesn’t have the goal of becoming rich. Your friend who’s really bad with money and has no self-control in reigning in their spending, I can bet you that this friend’s goal is to be rich as well, same as you.
But having a goal will not ensure that you will succeed.
Your detailed plan will separate you from those who merely dream. The doers with a plan will always trump the dreamers who have grand goals and nothing else.
Financial blueprints to follow
Having said all of these, I want to suggest three blueprints that you can consider when making your own financial plans.
Dave Ramsey - A Total Money Makeover
The first financial blueprint that I suggest you look into is Dave Ramsey’s 7 Baby Steps which he popularized in his book, The Total Money Makeover.
Now, I’m recommending this notwithstanding Dave’s religious and political viewpoints. Although I don’t agree with his religious and political opinions, I think that his framework is sound. So this recommendation is based purely on the 7 Baby Steps he’s advocating.
I discussed how we as Filipinos implement these baby steps in the Philippines in my post How to Achieve a Total Money Makeover in the Philippines.
The seven steps are simple, easy to understand and fairly easy to implement. It has already helped hundreds of thousands of people all over the world. I myself have based a portion of my own financial plan in these baby steps.
If you’re a total newbie or even an intermediate in terms of your personal finance journey, you will learn and benefit a lot from this blueprint.
Vicki Robin and Joe Dominguez - Your Money or Your Life
The second one blueprint I want to recommend for you to read about is Your Money or Your Life by Vicki Robin and Joe Dominguez. This is THE BOOK that started the financial independence and retire early (FIRE) movement.
Your Money or Your Life is a transformative book – it introduces so many important and original concepts that will encourage you to rethink your relationship with money, your work, and your life.
One eye-opening idea that got from this work is the concept of life-energy exchange. I wrote about this in my post How to Calculate Your Real Hourly Rate and Why You Should Do It.
If Dave has seven baby steps, Your Money or Your Life has nine steps that will require you to think deep. Both works have the ultimate goal of providing their followers a blueprint that will lead to financial independence.
The Bogleheads are investors who follow the investing principle of John Bogle, the inventor of the index fund and founder of Vanguard.
The Bogleheads’ blueprint is fairly simple and easy to implement. For them, the easiest and most surefire way to achieve financial independence is by investing your money in low-cost index funds and diversifying these by putting your money in 3 baskets:
- US S&P 500 or Total Market Index
- US Bonds Index
- World Equity Index
The allocation would depend on your age and risk appetite, but Bogleheads very rarely, if at all, deviate from this recommendation.
Long-time readers would know that I am a Boglehead and try to follow their recommendation as closely as possible, which led me to my quest to open a US trading account with TD Ameritrade.
Those who are interested to know more about the Bogleheads’ strategy for investing should read The Bogleheads’ Guide to Investing by Taylor Latimore.
Instead of a step-by-step blueprint that Dave Ramsey’s 7 baby steps and Vicki Robins’ 9 steps to FIRE, the Bogleheads method is for those who already have their finances together are now looking for a tested investment strategy.
These financial blueprints I outlined above are great guides for people who are in different stages of their financial independence journeys. Of course, the success of these frameworks are dependent on how you apply and implement them.
Remember that these are not meant to be followed rigidly and should instead serve as a guide as you work towards your goals. Remember that the first part of the word personal finance is personal. If needed, your blueprint may be tweaked based on your personal circumstances. But make sure that modifying plans should be based on actual need and not based on whimsy or some flimsy reasons.
Good luck and I hope you adapt one of the financial blueprints I suggested above.