The 4 P’s Of Personal Finance (And How To Use Them To Accomplish Your Goals)

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Have you ever heard of the 4 P’s of marketing – product, price, place, and promotion? They are four controllable factors that companies use to influence consumers to buy goods. Any good marketer knows that if they ignore even one of these P’s, it can affect sales and stifle growth.

Did you know there are also 4 P’s of personal finance? It’s true! Just as the 4 P’s of marketing, these 4 P’s work together to help you accomplish an overarching goal. For marketing, the aim is to sell goods. For personal finance, it’s securing your financial future.

What are the 4 P’s of personal finance?

  • Plan
  • Process
  • Portfolio
  • Person.

How they can help you set goals and achieve them with ease.  Let’s look.

  • Plan

The only difference between a goal and a wish is a plan. You may wish for more wealth and financial security, but you will never have it unless you plan for it. Only when we clearly identify our big, time-sensitive financial goals are we able to commit the resources needed to reach them.   

So, take a moment and think about your wishes. Do you wish you had enough wealth to leave a legacy after your gone? Do you wish you had enough money to put a down payment on a house or pay off your credit card bill? Do you wish to pay for your child’s college education?

Today is the day you turn your wishes into goals. Today is the day you make a plan to accomplish them.

So, go ahead. Grab a piece of paper and jot down your wishes. Once you have them written out in black and white, set a timeline. When do you want to achieve your goal? 10 months? 2 years? A decade?

Section off your paper like this (we will add to it in the next section):

Goal

Action Step(s)

Trade-Off(s)

$ Cost

Target Date

Ex. Save for a down payment on a house

$60,000

2/1/2025

(5 years from now)

  • Process

Lay out the process that will get you from Here (your current financial situation) to There (where you want to be financially). It involves identifying action steps, making trade-offs, and calculating the return on investment you need to reach your goal.

  • Action steps. Take your goal and break it into smaller milestones. If you want to save for a down payment on a house, for example, calculate how much you would need to save every month to reach your goal given your timeline.
  • Trade-offs. What trade-offs are you willing to make to reach your goal? We all make trade-offs every day. The only difference is whether we make them consciously or unconsciously. So, what short-term gratifications can you forego to get what you truly want? What will you choose to NOT buy/do, so that you may have/do that which you really want?
  • Return on investment. What sort of investment return do you need to reach your goal? If you want to save $1,000 a month for a downpayment on a house but can only save $860, what return would fill in the gap? In this case, you would need to earn 6% to make up the $140 difference. (Need help calculating compound interest? Use a free calculator like this one.)

Once you have gone through all three steps, fill in the rest of your sheet like this:

Goal

Action Step(s)

Trade-Off(s)

$ Cost

Target Date

Ex. Save for a down payment on a house

Save $1,000 per month for 60 months (assumes no return)

or

Invest $860 per month for 60 months in a portfolio targeting a 6% return per year.

-Pick up a part-time job working 10 hours per week

-Find a cheaper apartment when my lease runs up next year

-Keep Netflix, but get rid of all other streaming services

$60,000

2/1/2025

(5 years from now)

Creating a plan involves taking a hard look at the trade-offs you are willing to make and revising your plan until your goals, resources, and actions align.

  • Portfolio

Once you have figured out what type of return you need, it’s time to choose an asset allocation to match. There are four main asset allocations made up of different ratios of equity and fixed-income assets:

Equity is riskier than fixed-income, but it has a higher potential return. Fixed income is safer, but it often produces a lower return.

The key to choosing an asset allocation is to find one that balances your risk tolerance and the return you need to reach your goals. If you need a 6% return on your money – like in the example above – a balanced portfolio of 60% equity and 40% fixed-income may be enough. If you need anything higher than that, you may need 80% equity to get there. If you need more than, say, 8%... then you have more trade-offs to make.

Once you choose an asset allocation, spread out your risk even more by diversifying within each class. For equity, this means buying stock in many companies across many industries and economies. For fixed-income assets, this means buying bonds with different credit quality and different maturities.

  • Person

After you have created a plan, laid out your process, and designed your portfolio, work on enhancing your resilience – your ability to deal with anxiety and the unknown.

Begin a formal program to build your faith in the stock market, increase your patience, and enhance your discipline. Round out your personal finance knowledge by reading books on personal finance, find a fiduciary financial advisor who offers trusted advice, and – dare I say it –meditate! These practices give you the tools you need to overcome any obstacle that may come your way.

Remember, your future lies in your hands. You are responsible for knowing what you want. You are responsible for setting goals. You are responsible for taking steps to achieve those goals.

ONLY you have the power to create the life you want.