Financial Freedom: Plan-Do-Check-Act

In order for you to achieve financial freedom, you have to have a system in place to guide your decisions to live within your means, to save and invest and to grow your means. One way to develop a framework to apply the principles of living within your means, saving and investing and growing your means is the PLAN-DO-CHECK-ACT approach.

PDCA Approach (Deming Cycle in Quality Movement)
The Plan-do-check-act or PDCA approach is described by Wikipedia as, "... an iterative four-step problem-solving process typically used in quality control. "

It covers the following areas:

"PLAN

Establish the objectives and processes necessary to deliver results in accordance with the specifications.

DO

Implement the processes.

CHECK

Monitor and evaluate the processes and results against objectives and Specifications and report the outcome.

ACT

Apply actions to the outcome for necessary improvement. This means reviewing all steps (Plan, Do, Check, Act) and modifying the process to improve it before its next implementation."

How do we apply PDCA to our objective of achieving financial freedom?

1) Plan
You need to have an objective. Be specific and it should be something along the lines of, "I want to have $500,000 investible savings by age 50" for example. You need to develop the way or steps that will help you achieve your objective. These are the processes referred to in the PDCA approach.

2) Do
Action is paramount in any endeavour. But blind action without any pre-conceived notion of where you want to go and what you want to achieve will lead you nowhere. Action to implement the plan in the required steps (plus some variations along the way) take you bit by bit from where you are now, towards where you want to be in terms of achieiving financial freedom.

Let's say your target is to have $500,000 in investible savings by age 50. If you are now 30 years old, you have 20 more years to achieve this. $500k over 20 years = $25,000 a year. How do you save $25,000 a year? By first saving $1,000, $2,000, $5,000 a year etc and leveraging on the power of compound interest to help you. Will it be easy? Of course not! It will be challenging and tough if you do not believe in the principles of living within your means, savings and investing and growing your means. TOTO and 4D may bring you there maybe with a one in a billion chance but growing your investible savings at rates of 4% to 10% is possible but tough. It requires dedication, hard work and perseverance.

3) Check
As each year goes by and the number of candles on your birthday cake grows, how do you check if you are on track towards what you planned? Is your networth growing bigger, smaller or the same? Why is it? Analyse, think and critique yourself. If you have someone who you can trust and who is financially savvy, talk to them, or better still, read my blogs! :-)

Taking time to review how you have fared in your journey towards financial freedom is also important as periodic self-assessments give you some indication if indeed there is progress. More importantly, if you are not on track, you still have time to do something about it.

4) Act
Take corrective action if you are not doing so well according to your targets. Continue to do the same things if they are giving you the returns and growing your networth towards where you want it to be.

In the end, you continue with this cycle and continue to press on in your quest towards financial freedom. While doing so, don't forget to smell the roses and appreciate the small luxuries that life has to offer!

Be well and prosper.