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Set/Revisit your Goals
Try to set SMART goals. These are goals that are Specific, Measurable, Achievable, Relevant, and Trackable. For example, you may want to create an emergency fund in six months to have 3-6 months worth of your salary.
Allot a specific time. Sit down with a pen and paper or your computer. Start listing your goals, dividing them into three categories: short term, medium term, and long term.
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Short-term goals might include buying a new computer, or paying off credit card debt.
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Medium-term goals could be purchasing a car or going back to school.
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Long-term goals might be to buy a home, saving for your kids education or retire with enough money to live comfortably.
At the end, make sure you prioritize the list. Which ones are the most important to you? Which ones can wait?
Define a Plan
People don't plan to fail, they usually fail to plan. If you want to go to a place, you better know your directions, otherwise you are sure to get lost. It is as simple as that. Similarly, if you have set your goals, you better work on a clear and concise plan to reach them. Let's define a plan by taking a simple goal.
The goal is to buy a home in 3 years with 20% down payment. That's a SMART goal but to get you there you better draft a sound plan. In this case, you need to know things like:
Target Amount: Amount needed for the goal using today's dollars. If your goal is to make a 20 percent down payment on a home valued at $100,000 today, you would need $20,000 for the down payment.
Target Dates: Enter the year or date when you want to reach your goal, say 2011.
Start out Amount: If you have $10,000 saved in a money market account, you may decide to allocate half of it to the down payment. In this case, you would write $5,000 under Current Assets.
Gap: Indicate the gap between the cost of each goal and the assets you have allocated, in our example $15,000.
Number of Years to Target Date: Enter the number of years between now and your target date, which is 3 years.
Amount to Be Saved Each Year: Divide the difference by the number of years to the target date. That amount you need to save each year to reach your goal is $5,000 a year.
Coming up with $5,000 for a year might be a tough deal. Try to split it monthly. You can then start a savings plan to save around $420 per month to get to $5,000 a year. The next and important step in the financial planning is executing the plan.
Ready, Set and Go: Take Action
"Wisdom is knowing what to do next; virtue is doing it," said David Starr Jordan. Making up goals and plans is just 20% of the challenge; executing them is 80%. In our example, you have the goal and plan to be ready to buy a house in 3 years with a 20% down payment. How are you going to implement the plan if your financial situation is already tight? The first step is to analyze your current income and expenses to see where your money is going and what can you scale back. Start a simple budget to track your income and expenses, goinf after expenses which can be easily cut without affecting your lifestyle to achieve your monthly savings goal.
Open a savings account or an add-on CD to put away a fixed amount every month. Or setup an automatic debit from your checking account to this savings account. This way you don't have to do it manually. Finally stick to the plan rain or shine and you are sure to reap its rewards. |
