11.1.7 Three questions

When they think about personal finances, most people concentrate on their day-to-day finances. But sound financial planning includes both your day-to-day priorities and your goals for the future. It's easy to overlook long-term goals, to think that they are too far off or that you can't do anything about them.

Financial planning can help you reach both short- and long-term goals. It's based on finding the answers to three key questions:

• Where am I now?
• Where do I want to go?
• How do I get from here to there?

Successful planning works best when you have a clear picture of your current situation. This starts with the resources you have available, any debts or financial obligations, and your earning potential. Depending on your needs, it could also include insurance, legal commitments, income taxes, pensions and other factors.

You also need a sense of your goals or objectives. The note below on SMART goals will help you state your goals clearly as possible.

Finally, you work out the steps needed to move from your current situation to your goals. The steps have to be realistic and achievable. A realistic plan will show you how to get closer to your goal in steps that you can start to act on.

Later parts of this module will take you through the steps of a careful planning process, but they are based on finding the answers to these three questions.

SMART goals

You're more likely to reach your goals if they're SMART: Specific, Measurable, Achievable, Realistic and Time-framed. Here's an example:

• "Save for a vacation" is vague and hard to measure. How will you know if you are making progress or have achieved it?
• On the other hand, "Save $5,000 for a trip to New York within eight months" is more specific, measurable and achievable. You can break it into smaller steps—for example, by planning to save $625 a month for eight months—that are realistic and are set in a given time.
• For more information, see the video, Budgeting to reach your goals, in the module on Income, expenses and budget.

Financial independence and financial planning

Be sure to plan for your own needs. Your partner may be in a different situation and have distinct financial needs.

Women's financial plans often differ from those of men. For example, women may have less retirement income than men because:

• Women tend to earn less than men and more often work part-time.
• When a child is born, more women than men take parental leave. This may reduce their income for an extended time and gives them less time to save for retirement.
• Women on average tend to live four years longer than men.

Take into consideration your own resources and future needs, as well as those of your partner and family.