Adopt the Alice & Cheshire Cat financial plan

Q: I'm 29 years old, have a full-time job and am able to save money every month. I still live with my parents, but I'm moving into an apartment with my longtime girlfriend at the end of this year. I have no debt, except $4,000 of student loans. I need to get my finances in order and create a financial plan, but where do I start?

A: Perhaps you can recall from your childhood, a conversation between Alice and the Cheshire Cat in Lewis Carroll's marvellous book, Alice in Wonderland:"

Would you tell me, please, which way I ought to go from here?"

That depends a good deal on where you want to get to," said the Cat.

I don't much care where, so long as I get somewhere," said Alice.

Then it doesn't matter which way you go."

Now, that cat is one smart cookie. (And Alice is pretty clever for asking for advice, too.)

You can't figure out which way to go - financially speaking - until you know where you want to get to from here. That is, your financial plan must outline your goals as well as the best actions to get you there.

You need both pieces - plan and action - to give you the greatest chance of achieving financial success. You can't have one without the other. A plan but no corresponding action equals huge disappointment because you know what you want, but you aren't getting any closer. And action without initial planning is like wandering in the desert. Similar to Alice, you'll get somewhere, but it likely won't be where you want to get at all.

Given your current situation, here are the five components to your financial plan and their corresponding actions to get you started on the path to financial success:

1 - Debt . Set a deadline to have your student loan paid off. Pick a specific day, month and year and consistently make your payments until you get there. By diverting some of the money you save every month, you may be able to achieve this first piece of your plan quite quickly.

2 - Short-term savings. List all expenses in the next 12 months that will require a lump sum, such as first and last month's rent, a used vehicle or holidays. Immediately designate some of your current income as a fund for these expenditures, and add to it over time.

3 - Medium-term savings. Determine what items will require a cash outlay in the next five years. For instance, a down-payment on a home or wedding expenses (if you see that in your cards). But don't initiate this fund until your student loan is paid off.

4 - Long-term savings for retirement. I know it may seem like a long way away, but your retirement fund can really compound if you begin early. Use some of your monthly cash flow to save for the future, and you may even realize some immediate income tax deductions along the way, too.

5 - Risk management. This is often a forgotten piece of a successful financial plan. Insurance can cover the financial risk of a long-term disability or a critical illness (such as heart attack, cancer or stroke), and protect these unfortunate hazards from upsetting your plan.

Of course, your financial plan must continually adapt to your life circumstances. Regardless the changes in your life, for better or for worse, keep asking yourself: What's the new plan? What are the new actions required for the plan to continue to work?"

Make your financial plan. Act on your plan. Review your plan. Amend your plan, as necessary. Repeat. This is the best path for you, and anyone, looking to achieve financial success. Not only will it get you somewhere, there's a better chance it will be exactly where you want to go.

Thie Convery, R.F.P., CFP, CIM, FMA, FCSI, is a wealth advisor in Dundas. Her column appears bi-weekly in The Hamilton Spectator. Thie invites your questions at TheSpecMoney@gmail.com or by visiting ConveryWealth.com.