A picture is worth a thousand lines of a spreadsheet.
Managing your personal finances can be scary at times when you visit a financial coach or financial planner.
Any good financial planner worth your money will present data in a nice spreadsheet or make you fill a template form which has 30-40 questions about your current situation and your goals.
After filling out the form or trying to decipher the complicated spreadsheet and charts, you wonder if you have made any progress in your financial planning. The concept of simplicity gets ignored in the data and jargon.
Personal financial planning has to start with your goals, what you have today and where you want to reach. It is not about numbers on a spreadsheet, but more about what is your current life situation and where you want to go in next 3, 5, 7 or 10 years.
How do your write your goals in a spreadsheet or a predefined questionnaire? The answer is you simply can’t. These tools are built for data collection and analysis and not for top down planning.
The solution lies in a much traditional tool, pen and paper – even better pencil, eraser and paper. I find it extremely refreshing to write or draw my goals, current situation and how I want to go where I want to go.
It is what I call the Financial Planning Scribble.
It is a lot of fun and creativity as you design your own symbols to represent personal finance as possessions,liabilities, plans and road map.
Lets say you are assessing your Net worth (your assets – your liabilities). Your assets may contain real estate, cash, stocks, bonds, gold. Now think of a symbol for each along with a space to write the present value of the asset.
For example, for each real estate you can draw a house (remember the 3-D cube with triangle for the roof) and write the value in between the figure. Similarly use an envelope symbol for your cash (even though it is not hard cash but balance in your checking account). Your vacation fund can be a picture of your favorite spot (beach or mountain) and so on…
Go creative with your assets… you have built them with sweat, sacrifice and planning. They deserve to be given a life and make you happy about them.
The second part of Net worth are the liabilities, or in other words, what you owe. You should not feel good about these unless you have a plan for strategic leverage, like building your rental real estate portfolio with debt or student loan to finance a good education.
Your liabilities can be depicted as something that may scare you and force you to act to reduce them. Again go creative here as per the kind of debt. High interest credit card debt is a demon with blood in its mouth, as that is what it is doing to your life and finances.
The idea is to depict your personal situation today as accurately and vividly as possible. This is not always apparent in a numerical spreadsheet. The demons should scare you and the vacation fund or investments should make savings feel worthwhile.
The difference between the two (assets and liabilities) is your Net worth. See if the residual picture (your bright side covering the dark) is positive or not. You can find a symbol for the net worth, positive or negative.
Once you get to the habit of scribbling and sketching, you will find it so useful and refreshing that you can extend it to beyond Net worth.
Your investments and asset allocation can also be depicted through sketches and you can even draw your plan and ongoing monthly investments.
The idea of financial scribble is not to get too complicated and lose interest in tracking finances. Finance can be fun once you depict it in your own way, not in a financial planner’s jargon and spreadsheets.
Financial scribble helped me internalize my personal situation and plans, in a clear and concise way that anytime I can draw it on a piece of paper and use it to make bigger decisions. A very rough scribble (you can be definitely be more artistic) from one of my recent planning sessions is shown below.