People in Columbia, South Carolina, and across the nation are far more concerned with their personal finances today than they were a decade ago. The 2007 housing bubble burst and the financial crashes and bailouts of 2008 were a wake-up call. While the Great Recession officially ended in 2009, many Americans are still recovering from the loss of 7.5 million jobs and a sluggish economy that has yet to regain its former booming status.
Many Americans were forced to live from paycheck to paycheck and financial planning became somewhat of an oxymoron. There’s no doubt, however, that things have improved and it’s time to once again take charge of your personal finances.
- Determine Where You Are
You can’t plan for the future if you don’t know where you are right now. The first step is to determine your net worth; i.e., how much your assets exceed your liabilities. Make a list of everything you own (home, vehicles, 401(k), bank accounts, etc.) and their current values. Then make a list of everything you owe (mortgages, loans, credit card debt, etc.) and their current amounts. Subtract your liabilities from your assets. That’s your current net worth.
Next, determine your annual income. Naturally, this will be your salary, wages, or commission income, but don’t forget to include investment or interest income and “guaranteed” overtime or bonuses.
Finally, determine your annual expenses. Since your monthly expenses fluctuate and some expenses, like insurance premiums, taxes, etc. don’t occur on a monthly basis, you’ll need to go back over your past 12 months of receipts, checkbook register, credit card statements, and W2s or other employment records to know what you actually spent. Don’t forget to include those “hidden” expenses like income, Social Security, and Medicare taxes, union dues, and healthcare premiums that you never see since they’re withheld from your paycheck before you get it.
As long as you’re crunching numbers, create a couple of simple spreadsheets so you can categorize your income and expenses. That way you’ll know exactly what’s coming in and going out and for what. It may be a real eye-opener.
- Start Dreaming Big
In Secrets of the Millionaire Mind, T. Harv Eker said, “The number one reason most people don’t get what they want is that they don’t know what they want.” Spend some time brainstorming with yourself if you’re single or with your spouse if you’re married about your financial goals and how you might go about achieving them. Write down all of your ideas no matter how far-fetched they may seem right now.
Keep in mind that virtually all self-made millionaires have more than one income source; most of them have at least three. Just because you have a full-time job doesn’t mean that its income is all you can hope to achieve. Consider such things as opening an investment account, buying a rental property, or turning your passion(s) into an income stream by freelancing your abilities to others in need of the various things you love to do or make.
- Create a 5-Year Plan
Now that you know where you are and where you’d ultimately like to be, get started achieving your goals. Write a 5-year plan showing what you intend your net worth to be at that point and approximately how much you believe it will cost you to get there. Your plan doesn’t need to be elaborate, just a realistic cost-benefit analysis. It should include such things as establishing a budget, increasing your savings rate, reducing your spending rate, and making sure you have the necessary Columbia life insurance and other types of insurance like disability, auto, home, health, and income protection.
Personal finance simply means how you plan and how you manage your money. Achieving your financial goals is possible. It just takes a step-by-step plan and your dedication to following that plan.