Typically, this is the month that individuals sit down and plan their expenses for the year. You have probably made some New Year’s resolutions related to your health or other areas of your life. Why not make a resolution to becoming financially fit in 2014?
Here are nine steps you can take:
- Know your finances.
- Create a monthly spending plan.
- Examine your credit history and insurance coverage.
- Set clear financial goals.
- Organize your record keeping.
- Meet with a financial planning professional.
- Create your strategy.
- Protect your assets.
- Schedule a year-end review.
Over the next few weeks, I will discuss each step in detail and provide you with some easy “call to action” items to help you progress. Let’s get started.
Step: 1 Know Where You Stand Financially
Before you can put a plan in place, you need to organize and understand your expenses, savings, debt, etc.
You need to know exactly how much is coming in…how much is going out… and how much is left over.
You need to understand your Net Worth and Cash Flow:
- Net Worth=Assets-Liabilities
- Cash Flow=Income-Expenses
Not only is it important to take the time to create these statements so you have a starting point, it is also important to include your spouse or significant other in this process. For various reasons, we, as women, sometimes have a tendency of not wanting to talk with our significant other about financial matters. It is important that you both have an understanding of the family finances and be able to set goals as a couple. Either of you should be able to step in and be knowledgeable about everything from the monthly budget to insurance and investments. To help you start the conversation, you may want to read the article, Have You Had the Talk?, published on the www.dailyworth.com website.
Call to action: Within 48 hours, schedule a date with your spouse or significant other to review your household finances.
Step 2: Create a Monthly Spending Plan
Do you know where your money goes? Do you have a positive cash flow? If you answer is no (or I don’t know!) to either of these questions, you need to create a spending plan (budget).
We all know how important it is to live within our means but it is equally important that you are able to identify where your money is being spent.
Creating a spending plan also helps you identify areas where you can potentially reallocate to fund your goals. You may want to read an informative guide entitled, Budgeting: Managing Your Money with a Spending Plan provided by The Financial Planning Association. The guide offers more detailed information on living with a spending plan and a worksheet.
Call to Action: Two Weeks-Complete a monthly budget or spending plan
Next week, I will discuss step 3: Examine your credit history and insurance coverage.