Wednesday, January 07, 2009

Develop a Good Strategy

"Strategy is deciding which hill to take." ~ my last boss

There is an abundance of financial ideas, approaches and success stories. Deciding which to incorporate into a personal financial approach can be overwhelming. To me, one solution is to choose a specific set of actions from the ideas and approaches that will best help to achieve one's goals and specific measures.

A strategy is simply a customized action plan to achieve a goal. Here are what I consider some important qualities of a good strategy:

  1. Capable to deliver goal. It's important to do what's needed, instead of just what's easy. When executed, the plan must have a reasonable possibility of achieving the goal. In addition, the elements of the plan need to work for people's personal situation.

    For example, it may be nearly impossible to save a million dollars on $1 per day, although saving over $400,000 is possible under favorable circumstances. On the other hand, saving $10,000 per year for thirty years and earning 10% returns does yield over a million dollars, if that happens to be a goal.

    Similarly, a good plan for someone make $100,000 per year may not be a good plan for someone make #20,000 per year.

  2. Adapted to one's strengths and weaknesses. A good plan leverages one's strengths and avoids dependence on weaknesses. My strengths include saving, forgoing purchases and earning steady returns, and I build our financial strategies around these elements. A personal weakness is a dislike for taking very high risks to earn bigger returns. Therefore, our strategy does not include starting a business from scratch which requires a large capital investment.

    To me, there is always more than one path to achieve a goal. The path that leverages the most strengths will have a higher probability of success.

  3. Is sustainable. For me, the most important aspect is being able to stick to the action plan each and every year. A good plan should be able to be maintained for the long term, otherwise it's not a good strategy.

    A plan I can't commit to doing for many years will not likely be successful.

Finally, even good strategy doesn't guarantee short term success. Occasionally, there will be economic aberrations like the one that occurred in 2008, that cause poor results for even good strategies. However, I do believe a good strategy will have a better probability for success in the long term.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

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