Goals and Plans. What’s a Terms of Reference anyway?
Terms of reference, abbreviated as TOR, describe the purpose and structure of a project, committee, meeting, negotiation, etc. When used with regard to a project, they can also be known as a project charter.
Terms of reference show how the scope will be defined, developed, and verified. They should also provide a documented basis for making future decisions and for confirming or developing a common understanding of the scope among stakeholders. In order to meet these criteria, success factors/risks and restraints should be fundamental keys.
Creating detailed terms of reference is critical, as they define the:
• Vision, objectives, scope and deliverables (i.e. what has to be achieved)
• Stakeholders, roles and responsibilities (i.e. who will take part in it)
• Resource, financial and quality plans (i.e. how it will be achieved)
• Work breakdown structure and schedule (i.e. when it will be achieved)
They should include:
• Success factors/risks and restraints.
The terms of reference set out a road map. They give a clear path for the progression, by stating what needs to be achieved, by whom and when. There must then be a suite of deliverables which conform to the requirements, scope and constraints set out in this document.
So there’s the definition – it’s from project management parlance. In my humble opinion, wealth generation is a life project of continuous improvement, split into definite time periods, the beginning of which can be characterised by a starting plan date (eg. First two weeks of January 2010) and ending with a reconciliation date (eg. Last two weeks of December 2010) at which time you will compare the achieved results with the plan. Whatever the time period of the plan, the next plan should not be started before the results of the first plan have been evaluated to see how realistic your goals and plans were when you started.
To fail to plan is to plan to fail.
As Thomas Edison put it: “Many of life’s failures are people who did not realize how close they were to success when they gave up”
If you give up on anything too early, it’s unlikely you will be successful. In this series of articles, I am advocating an overall plan period of twenty years to move from no financial independence to total financial independence. Since most people spend forty years or more of their life in a job (which stands for Just Over Broke), it’s not too much to ask to spend some time taking stock of your current situation, making a plan, and setting about sticking to a plan.
If you are new to planning, don’t panic. Take it easy. You have twenty years to get on with it, or more if you don’t start NOW. It’s remotely possible that you will become wealthy without any planning or intention. People win the lottery - you have four times the likelihood of being struck by lightning than winning the first prize in the national lottery – about one chance in fourteen million. See the explanation of how likely you are to win the national lottery at this link:
http://www.murderousmaths.co.uk/books/BKMM6xlo.htm
You may inherit money from relatives who leave you a lot of cash in their will.
You may marry a rich partner who will promise that you obtain financial freedom.
But all of these remote possibilities would not guarantee financial freedom if you don’t know what your income and expenditure (spending) is today, or what it is going to be in the future.
The fact is, if your wealth (amount of money or assets) does not provide sufficient INCOME to cover what you spend every year AND to maintain the real value of the investment after accounting for inflation, you will become poor sooner or later.
There is a link below to a simple Terms of Reference for wealth planning, aimed at those people who are in debt (Level 0 investor).
Its use is to write down your life wealth objectives and to begin a wealth plan. Although this is targeted at Level 0 investors (those with net debt) it is equally applicable to those who have not previously planned how their wealth is going to increase with time, be they Level 1 investors whose wealth is less than £50,000 excluding the property they live in, Level 2 whose wealth is between £50,000 and £500,000 or Level 3 whose wealth exceeds £500,000.
http://tinyurl.com/ydrmozr
So how is this going to help you?
In the MoneySavingExpert personal budget referred to in the Wealth Planning Template linked above, the baseline result was a family earning £3,517 per month, and spending £3,731per month (£215 more than income).
In the example below, the spending categories were separated into Essential (eg mortgage/rent, water, electricity, gas) and Discretionary (eg beauty treatment, dining out, etc).
When all of the Discretionary categories were considered, the example family decided on the following changes to monthly costs:
The result of a mild cost containment plan is a reduction of spending of £634.85 per month PLUS, a 100% increase in credit card debt repayments from £50 per month to £100 per month.
Priority
Not everyone will agree which spending categories should be changed, with priority, but it is important to first know where the money is being spent, then to make changes to the amount of that spend to achieve an objective.
Stakeholder agreement
It is also important that all stakeholders agree with the plan, and agree with the targets for spend reduction. In this family’s case, if they stick to their desired spend in all categories, instead of spending £215 more than they earn, they will spend £421 LESS than they earn, and have paid off an additional £600 credit card debt in one year.
What's the real goal?
That amounts to a cash surplus of £5,650 in the first year from a cash deficit of £2,580 the previous year. If debt interest was being paid at 10% of debt, that also reduces debt interest by around £560 per year. So the real gain is £6,210 in the year.
In section 6 of the work plan and milestones, it is stated that a saving of £6,000 per year was required to reach the goal of zero debt. Detailed planning and budgeting shows this is possible within one year.
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