[Image: bulls eye]Most families spend more time planning a yearly vacation than they spend planning their financial future! They may know where they going this summer, but they don’t know where they are going in life!
Your future, however, does not have to be uncertain. Let’s use the simple analogy of a family vacation to understand the importance of financial planning. If you are planning a trip, you begin with the end – your destination – in mind. You decide where you want to go then … you plan the best route to get you there. Financial planning is much the same. You plan goals…then you plan the most logical steps that will help you achieve your goals.
To achieve goals takes planning. Many people today, however, live in the fast lane. They never stop long enough to see where they are now … much less plan for the future. It’s no wonder they feel lost. It’s hard to get anywhere when you don’t know where you are now…or where you are going!
Identifying goals is often the easy part! But making these goals a reality can be difficult without a plan. To “Chart the Course” for your family’s financial future, follow these four key compass points:
- Decide where you want to go – set SMART financial goals
S- Specific
M- Measurable
A- Attainable
R- Realistic
T- Time bound
Using the family vacation analogy: I want to save $1200.00 to go on a family vacation to the mountains of Tennessee in one year.
It is specific –$ I200 for family trip/ 1 year away
It is measureable – $1200 equates to $100 per month
It is attainable – my family income can afford the $100 per month for 12 months
It is realistic – on our current budget we can find the $100 per month
It is time bound- 1 year (12 months) in time
- Find out where you’ve been – track your cash flow. Find out exactly where your money has been going. Collect income and expense records to track your past spending,
It is recommended that you track your expenses for a minimum of one month to see where you spend your money. Although this is very tedious to do, it can be quite informative. Your small everyday spending decisions can add up and have a huge impact on your financial life. This means to write down, EVERY penny you spend for one month…..even the 75 cents you put in the soda machine everyday at work.
- Find out where you are now – determine your net worth. A net worth statement is a “snapshot” of where you are now on your financial journey. It’s a statement of how much you own and how much you owe,
List your assets -everything of value you have and the approximate value of It; even if you are still paying for it. Now, list your liabilities – this is the amount of debt you have, credit cards, mortgage, car note, any consumer loans. Subtract the liabilities from the assets to determine your net worth. You want this number to go up each year.
“Chart the Course” for your future – prepare a family budget. Preparing a family budget is the plan to help you achieve your goals. Think of it as a spending plan, you are proactively planning your spending patterns so that you can manage your money and chart the course of your financial future.