Creating a balanced financial life is a lifelong process. As soon as you get one thing straightened out, it seems like another issue pops up requiring your attention. This is one of the “truisms” of financial planning – it is a process not an event. This may cause you to groan and feel discouraged but let’s explore what this really means.
Let’s say you start with one financial concern that you are ready to tackle and you take the steps necessary to change your situation. This is where the “process” begins; when you begin changing one thing, you have to look at the impact on the other areas of your life. In the financial planning process, “everything affects everything” so no decision should be made in a vacuum. Let’s consider the following examples:
Planning to increase your insurance deductible to reduce your premiums? This may also require an increase in your emergency fund to be sure that it is sufficient to cover the deductible.
Thinking about cancelling a credit card that you are no longer using? This may make your credit score go down and, if you are planning to borrow money in the near future, could cause you to pay higher interest rates.
A comprehensive financial plan is really the only way to make sure that you are aware of all necessary financial considerations for your particular situation. Making a comprehensive plan doesn’t mean that you have to take on every issue at the same time if that is too overwhelming. Remember, it is a process not a one-time event so take it one step at a time.
One of the tools I use to help people find balance in their in their financial lives is the financial wheel.1 Using the financial wheel, we go through the process of identifying their level of satisfaction in several different areas and then they take action on one area before moving on to the next. Financial distress can take many different forms and assessment tools like the wheel allow us to unpack the various financial topics and look at them individually, rather than attempt to handle everything at once.
1 this is an adaptation of the “wheel of life” used by many executive and business coaches