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Know Where You Are Going Before You Start

I remember one of my high school teachers would constantly repeat the refrain: “Know Where You Are Going Before You Start.”  It wasn’t until after college that this idea finally sunk in but it wasn’t until I had a family did it really start to hit home.  My high school teacher was stressing the importance of planning.  I hate planning, especially in the context of daily planning, but there is one form of planning that I believe is absolutely important and that is financial planning.

If we want to retire at the age of 60 or save enough money for kids’ college these major financial events require financial planning.  We want to save for a down payment on a home or pay-off all our credit card debt - this also requires financial planning.  Now, I am not advocating that we rush out and find a Certified Financial Planner to develop a detailed plan - although this is a good idea there are things we can do without the formal process.  It does require taking the time to do it and performing some research.

Any form of financial planning should be in writing.  Having it in writing makes us less likely to forget about it compared to just verbalizing some objectives and goals.  We are more likely to “internalize” the financial plan or in other words implement it.

Start discussing goals and objectives.  There is a difference between goals and objectives but I am not going to go into that.  Brainstorm these goals and objectives and write them down.  Think short-term and long-term.  It is a good practice to plan for short-term goals (up to 5 yrs) and long-term goals (5 yrs or more).  Another thing about goals and objectives: it is a good practice to have some date or time frame or “deadline” attached to a goal or objective.  For example, an easy one would be a goal of retiring at the age of 60 - that has a time line attached to it.  Another example would be we want to buy a new house in three years.  This time frame gives us guidance and helps with budgeting (oops, you know what is coming up).

Organize and prioritize these goals and objectives.  As much as we want to do everything, we may not have the financial resources to do so. 

Attach “action items” to these goals and objectives.  For instance, if we are going to pay off our credit card debt that obviously means we have to make sacrifices elsewhere in our spending.  So, one action item may be to cancel cable/satellite service.  Or if we are saving for a down payment on a house one action item may be that we save $500 per month.

Construct a monthly budget based on goals/objectives and action items.  A budget is a critical part of the financial planning process.  A budget helps make the goals/objectives a reality.  Once in writing remember to review the plan and budget periodically - monthly, every six months or annually - to check on our progress and to make any necessary adjustments.

This is a very simple way of getting control of our finances.  It is just a matter of sitting down and doing it.

Good luck.

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