2010-06-05T08_16_38

Finances

How are your finances? Sadly this is an uncommon, almost taboo, question. We ask after our friends' physical health, and happily discuss our own ailments. But inquiries about finances are generally left for third party gossip as there is something not quite polite in directly asking after and talking about finances. The consequence of this sad convention is that few people are aware of their current financial status. Are you heading confidently in the direction of financial security or towards an economic meltdown? If you know, you are in the minority. If you don't know, at least you are in the majority, but you are exactly where the marketers and predatory lenders of our modern world want you to be: an easy and malleable target ready to be squeezed through the financial wringer.

But you can take steps to improve the situation. A simple financial get well plan followed by its implementation will correct years of neglect in a surprisingly short period of time. You start by creating your plan and this article will tell you how to do that. If you have no plan you are planning to fail, as the wise writer once said. Don't plan to fail financially. Take a moment to read through what it will take to get you on the straight and narrow. Take a copy of your plan and tape it to your refrigerator. Soon you will have rejuvenated your finances and your future will be free of fiscal worries.

Step 1. Take stock. Where are you now? What are your assets and liabilities? Compute your net worth (your assets minus your liabilities). Know your income and outgoings on a monthly basis. Are you generating money every month or simply making a bad situation worse?

Step 2. Make changes. Based on your findings from Step 1 change what you are doing. You may need to reduce outgoings. If so, reduce your outgoings! You can find items to drop from your groceries, car payments, and insurance payments and so on. Don't stop eating or insuring - but do not pay more than you generate each month. This is simply common sense. Adjust your rate of burn to be somewhat less than your income. If you can't cut any more expense - then you had better generate more income. A second job or renting a portion of your home - you can do it if you put your mind to it.

Step 3. Pay yourself. Insure that you are saving at the very least 10 percent of your income. Don't quibble, just do it. It is your blood sweat and tears that generated the income, put it to work for you in a sensible retirement account and do not touch it. As soon as you can, make the amount that you save twenty percent of your income. You will reduce your taxes and you will insure that your work will not be dissipated before it has had the chance to fund your retirement.

Step 4. Grow your assets. Steps 1 to 3 will put you on a financially healthier course. Now is the time to go back and build your assets. Review what you learned in Step 1. Are there liabilities which could be disposed of and turned into assets? Do you have a warehouse or garage full of junk which is just a burden? Do you have an interest in a property which is not being properly utilized? Do you have a time share property that you cannot use? Do you own a boat that you need to maintain? Do you have credit card debt? If so pay it off as quickly as possible. Don't make other investments unless you have paid off all your credit cards and cut up the cards. If after all the publicity about predatory lending practices and consumer debt you have shown yourself to be unable to avoid the temptation of credit cards - you need to be strict with yourself. Take the time to consider every liability and either decide that it offers you real value - its drain on your finances is worth it - or that it should be disposed of as soon as possible. Do not worry too much about the selling price of something that is costing you money to maintain! While you are working through and removing your liabilities also consider your assets. Which are most successful and why? How can you enlarge your asset column?

Step 5. Set goals and monitor performance. Steps 1-4 will put you into a healthier frame of financial mind. Now you need to think longer term. What are you goals and how much money do you need to carry out your goals? Where do you want to live in the future? What experiences do you want from life? Do want the sights and sounds of foreign climes? Or do you want to contribute to the advancing technological future of the world? Do you want to start a business? Armed with an idea of what you want you then need to plan for that end point. Put a dollar figure to the target be it 5k, 50k or 500k. Decide on a time frame and a set of intermediate goals that will get you to the target. You may need to change your saving rate, again. You may need to get a second job. You may need to monitor your investment allocations. Base your plan on your goals and devise a system for easy monitoring. If you have assets which you can monitor in the financial markets this is particularly easy as an online brokerage will give you an instantaneous read out of your allocations and financial status.

Of the Five Steps, Step 5 Set goals and monitor performance is the most powerful yet most difficult to put in place. When you reach this step you are well on your way to a powerful and fulfilling financial future.

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