"It's Easy as P.I.E" - Evaluation

Learn the art of patience. Apply discipline to your thoughts when they become anxious over the outcome of a goal. Impatience breeds anxiety, fear, discouragement and failure. Patience creates confidence, decisiveness, and a rational outlook, which eventually leads to success. -Brian Adams

I. Introduction

So far, I have written about the methodology I use for my personal finance planning. We all know that the saying is "It's as easy as P.I.E." We all know that the P stands for planning. We also know that the I stands for implementation. Although these are two important steps in the process and help get the whole thing started, the step that is used to keep you inline with your original plan is the last, evaluation.

The definition of evaluate (Direct Link to Definition):

e·val·u·ate /ɪˈvælyuˌeɪt/ Pronunciation Key - Show Spelled Pronunciation[i-val-yoo-eyt] Pronunciation Key - Show IPA Pronunciation –verb (used with object), -at·ed, -at·ing.

1. to judge or determine the significance, worth, or quality of; assess: to evaluate the results of an experiment.

As shown in the definition, the evaluation stage of the process is to assess the worth and quality of the plan and implementation.

II. Why Evaluation?

Imagine that you were driving a car down an interstate going around 70 mph. As you are driving down the road, you see signs that say something along the lines of "Construction Area 2 miles ahead, speed limit 55 mph". At this point, you really have two choices, you can either:

1. Disregard the sign and continue driving 70 mph through the construction zone.
2. Reassess your current speed and slow down to 55 - 60 mph

One thing that was failed to be mentioned in the previous example is that there is a cop waiting down the road 2.5 miles with his radar gun out ready to catch a speeder that is going 5 mph over the posted limit. For those who chose option 1, congratulations, you just landed a speeding ticket in a construction zone that typically tacks on a hefty penalty. For those who chose option 2, congratulations, you avoided a expensive and non-necessary speeding ticket.

Although this example is a bit lame, it goes to show you that sometimes in life, we need to look back and reassess our current "plan". As in our example, you may have planned to reach your destination in 30 minutes by going 70 mph the whole way. However, to avoid the possibility of getting a speeding ticket, you may decide that you need to slow down, call ahead and let those at your destination that you will be arriving a bit late.

In addition to our current "plan", we may also need to reassess the way our plan is being implemented. Sometimes a project can be planned out to the tee, however, the implementation of that plan may be flawed and requires a new methodology to put the plan into action so that it is successful. Once again, using our previous example, you may find that you need to get to 55 mph while in the construction zone, however, rather than taking your foot off the gas and letting your car coast to 55 mph, you decide to slam your breaks causing a vehicle behind you to smash into the back of your car. As the saying goes, "there's more than one way to skin a cat", in addition to that, there is more than one way to implement a plan. However, sometimes we do not implement our plans in the most efficient ways.

III. How do I Evaluate?

Evaluation is a key skill learned mostly by experience. Many people in the world can try to share with you their own methodology of how they assess their situation and determine what changes need to be made for more efficiency, however, each person is different. What may work for me, may not work for a group member in a similar situation. With this in mind, I can only explain to you how I perform my "evaluation", however, it is by no means the only way to reassess a situation.

Step 1: Review original goals

• You cannot know where you are going unless you know where you came from. During this step, it is important that I look back at my original plan to get an idea of what I want my outcome to be.

Step 2: Compare current situation with original goals

• At this step, you look at your current situation and see how they are stacking up against your goals. For instance, if you are saving up for a car and your original plan is to be able to buy the car in three years, however, after one year, you already have more than half of what you originally planned to save, you can readjust your original goal to reach it sooner than expected.

Step 3: Adjust current situation in line with original goals

• To contrast, if you find that you are behind on your savings goal, you can make the necessary adjustments to your income (either by obtaining more income or reallocating money from a discretionary spending account) to catch up on your original goal and get back on track to obtain your goal when originally planned.

Step 4: Repeat

• Of course, this is not a one iteration process, evaluation most take place over and over to ensure that you meet your goals at the specified set date.

IV. Summary

As shown in this article, evaluation is a key component to obtaining your goal. It allows you to adjust over time as your situation changes to ensure that you stay on pace to obtain your goal. Now that you understand this principle, obtaining your goal will always be "Easy as P.I.E."

As always, if you have any questions, please submit an email to the group or leave it in the comments below.

It's Easy as P.I.E. - Implementation

*Note - Adjusting Easy as P.I.E.E -> P.I.E*

So, after further research into the definitions of implement and execute, I learned that they were pretty redundant. After discovering this, I have revised P.I.E.E to P.I.E with the steps (Plan, Implement, Evaluate). This will be adjusted in previous posts as well as in all further posts referring to this idea.

I. Introduction

Having a great plan is essential to carrying out a great idea, but unfortunately, those words on paper do not translate into action. Step two of "It's easy as P.I.E" involves the implement phase which involves carrying out the changes in your everyday life.

• Definition of Implement
• Implement - to put into effect according to or by means of a definite plan or procedure. (Definition Link)

II. Importance of Implementation

• This is the phase where the plan becomes action.
• This allows you to establish a sense of accountability for carrying out the plan
• Requires discipline and change in behavior
  

III. Methodology to Implementation

• Set up the necessary resources to accomplish the plan
• For example, if you plan on establishing an Emergency Fund, go through the steps of completing an online application for the account immediately, even if you cannot fund it at the moment.
  
• Take Baby Steps
• Slowly convert to follow your plan so you will not overwhelm yourself with so many changes at one time.
  
• Rome was not built in a day and typically your plan will not be fulfilled overnight.
• Give you a chance to have smaller successes which helps to boost confidence and propel you forward.
  
• Create a task-list of your progress to celebrate accomplishments
  

IV. Summary

A plan is only as good as the steps taken to put it to action. This may be the hardest step because implementing a plan takes one out of a comfort zone and forces them to make a change. After this change has become part of permanent behavior, then it requires small tweaks as covered in the evaluation stage.

"It's Easy as P.I.E.E" (Part 1) - Planning

I. Introduction
Many great works of arts, corporations and accomplishments all started out as ideas. However, great ideas are just that, ideas. They give you an "idea" of what the finished product should be like, however they are not by any means the end products such as the Mona Lisa, Microsoft Empire or a flight to the moon. None of the previous examples would have been accomplished without a plan. The definition of a plan is listed as the following:

Plan - a scheme or method of acting, doing, proceeding, making, etc., developed in advance (Definition of Planning)

There are many types of planning. Some specific types are:

• Financial
• Project
• Life

The scope of this article will deal primarily with financial planning, however some of the same principles can be used to other variations of planning.

II. Importance of Planning
Everything in life has an order. Of course there are questions like "What came first, the chicken or the egg", but other things are a bit more obvious, such as instructions to bake a cake, or the process in growing a vegetable in a garden. There are clear steps that need to be take in order to get to a final finished product and whether a person remembers those steps from memory, or reads them one by one out of a book, there is a "plan" in order to get the job done. A plan is necessary because it gives you the following benefits:

• Benefits of planning
• Allows you to have a better chance to accomplish your goal by having something to "stick" to
• Allows you to adjust accordingly in the case of the unexpected
• Road map/Guide to Follow
• Saves time in the long run to know how to execute rather than having to figure out something new
• Small goals allow you to have small successes along the way to the final goal

In addition to that, it also helps you avoid some common shortcomings that is experienced by those who do not plan:

• Things that planning prevents
• Giving up prematurely
• Jumping into a situation blindly

With this information, it is easy to see why planning is such an important step in a the process to your financial freedom. Now all you need is a template to follow to build your plan.

III. Methodolgy to Planning
Planning does not need to be a very long and tedious process for most people. However, the amount of time you invest in your plan will more than likely reflect the final product that you want your plan to accomplish. Below are the steps that I use to develop my plan:

• Set apart dedicated time for the planning process
• Research what you are planning for
• Identify the best order of steps to get to the final product
• Organize the resources needed to accomplish the plan
• Identify different scenarios
• Plan for the worst case scenario
• Always have a "way out"
• Write down the plan

IV. Short financial Planning example
Below is a scenario and example of a simple plan that can be used for the scenario:
Current Age: 25
Current Income: $35,000
Current Monthly Income: $2,900
Current Monthly Expenses:$2,000
Discretionary Money (Month): $900
Marital Status: Single

Financial Goals to Accomplish in 1 year (and approx cost):
New floors ($3000)
Money contributed per month to accomplish goal: $250/month
New TV ($1000)
Money contributed per month to accomplish goal: $83.33/month

Financial Goals to Accomplish in 5 years (and approx cost):
New Car ($20,000)
Money contributed per month to accomplish goal: $333.33/month
Masters Degree ($10,000)
Money contributed per month to accomplish goal: $166.66/month

Financial Goals to Accomplish in 10+ year (and approx cost):
New House ($25,000 for downpayment)
Money Contributed per month to accomplish goal: $208.33/month (for 10 years)
Retirement ($20,000/year from 65 - 90 [approx $500,000])
Money Contributed per month to accomplish goal: 395.50/month (Financial Calculator)
[Interest Rate approximately 8%]
*Unrealistic as $500,000 today is going to worth less than $500,000 40 years from now*

Total Contribution per month for the first year: $1437.15/month

The person who uses this plan will either need to find a way to get more income or allocate funds properly to more immediate goals and reallocate after immediate goals have been accomplished.

V. Tools to use to assist in planning As mentioned before, plans can be as complicated or as simple as you wish. However, in any case, there are great tools to use to aid in this process. Some of the tools are listed below:

• Project Timeline Software (Microsoft Project, Spreadsheets, etc)
• Brainstorming (write out ideas)
• Mind dump (thought web)
• Outline
• Advisor

VI. Summary on Planning
Planning is a necessary step in obtaining any goal that is laid out by one to accomplish. Not only does it help to provide a clear view of what the end product should be, it gives the road map to getting there. Please let us know your thoughts on how to plan and share with us any of your personal tricks to planning.

Importance of Separating (Specializing) Accounts

Have you ever received a big sum of money into your checking account at one time? If you're anything like me, you see all of this money and all of a sudden, that 42" LCD TV looks to be a better deal than initially thought. After you go on your mini-shopping spree or purchase that item you had been eying for the last two weeks, you all of a sudden find yourself with more bills and less money to pay them. This is a problem that I used to run into before I started separating my accounts (financial goals). Now when I receive payment, I have a pre-scheduled deduction from my checking account to each of my specialized accounts.

Separate (Specialized) Accounts give you a Purpose

By creating a separate account for a specific financial goal, you can now have a reminder of the purpose of why you are contributing to that account. Typically, when you open an account with a online financial institute, they give you the ability to name each of your accounts so you are reminded exactly what you are contributing to. Some examples of specialized accounts are the following:

• Mutual Funds
• Stocks
• Car Savings
  
• Discretionary Spending Money
  
• Re-occurring Bills
• Emergency Fund
• 401(k)
• Buffer Savings Account
  

Separate (Specialized) Accounts allow you to Prioritize

By separating each of your accounts, you can now prioritize where your money goes. This allows you to easily adjust your allocation to each specific account in the case that an unexpected expense comes up or you are fortunate enough to get extra money. In addition to that, this helps combat the problem of overspending when there is a large amount of money in your checking account at any one time. By allocating your funds to each of your financial goals on the day that you get paid, you can be sure to have your financial goals taken care of and then decide how you want to use what is left over (without any guilt).

Separate (Specialized) Accounts allows you to see Progress

Separate accounts allow you to track your financial goals on a individual basis. Rather than having all of your money lumped into one account and have to manually calculate how much money you have for each goal, you can have them in individual accounts and watch the trend as your money grows over time. In addition to that, some specific accounts allow you to get more interest than others, so it may be more beneficial to have your money in an account that bears more interest.

Separate (Specialized) Accounts allow you to Prevent Unnecessary Withdrawals

Sometimes when money is easily accessible, it is easily spent. By separating accounts, one can put money in a less accessible account, such as an online high-interest savings account which typically gives you an option of whether or not you would like to receive a debit card. If you opted out of receiving the debit card, there is less temptation to withdraw that money prior to reaching your financial goal.

Although there are many benefits to specializing accounts, it does require a small amount of extra work. You must learn to keep up with the different accounts by keeping a list of each account and remembering the different passwords for each site. In addition to that, you must be sure to do proper planning to ensure that you have enough money to pay for your re-occurring bills prior to saving for other financial goals.

Once you have separated your accounts to isolate each financial goal, you will find it more rewarding to watch your money grow. Below are some financial institutes that I have used with separating my accounts.

HSBC Direct
Washington Mutual
ING Direct

As usual, if you have any questions or other recommendations, please leave a comment below or blast it out to the financial group list.

Stay Discplined!