There is no financial GPS that will guide you to reaching your financial goals. Putting a plan together isn’t that difficult. Although, I hate my wife’s to-do-list, the job doesn’t get done unless it is recorded somewhere.
STEP ONE – Define your goal
Some common short term goals are:
– Debt reduction/elimination
– Vacation planning
– Planning a wedding
– Home ownership
– Family planning
– Post graduate degree
– Job retraining programs
The most common long term goals are:
– Saving for your children’s education
– Paying off your mortgage
– Saving for retirement
Write down you goal and put it in a place you can see it – on your fridge, in your phone, even a sticky note on the bathroom mirror. Have it handy to remind yourself.
STEP TWO – Analysing your net worth and income statements
Take a good look at where your hard earned money goes. Where could you cut back on your spending? You should have a bare minimum of 10% of your gross income left over after paying all your expenses. If not, then you don’t have enough income, have a spending problem or have too much debt. Taking a look at your goal, determine how much you need to save each month in order to achieve it.
STEP THREE – Avoid pitfalls
Peer pressure and “keeping up with the Jones,” make it difficult to stay on track. Comparing your life style to your family & friends is a common mistake. Spending money that you don’t have on a winter vacation because that is what your friends are doing can be a big financial setback. A common expression used for people who spend money that they done have is “They have champagne tastes on a beer budget.”
STEP FOUR – Stay focused
Keeping your focus on long term goals can be difficult. The benefits are so far in the future, it’s easy to take a detour. It is easy to put off saving for your child’s education because it is so far away. It is much more fun to take the whole family to Disneyland! You don’t have to be a math genius to figure out that saving a little money each month for your new born child’s education will add up to a sizable sum at age 18. The longer you wait to start saving, the more you have to save per year to meet your long term goals.
STEP FIVE – Reassess
It’s helpful to take a look at your plan every few months to ensure you’re on track. Is the goal still realistic or attainable? If not, what adjustments can you make?
It takes time, commitment and sacrifice to increase your wealth. Plan your route and stay on course! One of my favourite financial planning quotes is “People don’t plan to fail but fail to plan.”