An annual financial plan allows you to determine your financial situation at a given moment. Now is a great time to get this done for 2021. It should include looking at all your assets and liabilities, deciding what your goals are, and what methods you will use to achieve them. Call it your financial roadmap for the year ahead. This will serve you as a simple visual guide to help you remember your financial priorities this year. Consider it a short-term steppingstone on the way to your long-term financial goals. It is designed to help you maximize your money by prioritizing short-term goals with longer-term goals in mind.
With your annual – 2021 – financial plan mapped out, you will see at a glance all your assets and liabilities. All your expected income, what’s in your savings and checking accounts, how much you have in retirement savings, and your liabilities. The liabilities column of your ledger should list your outstanding debt (mortgage and car loans, credit cards, and other personal debts). That should sum up your monthly expenses (out-go). This snapshot should also factor in what your goals are and what you’ll need to do to get there. This can include things such as retirement planning, education cost saving, tax planning, and investment strategies.
Here is a five-step checklist to mapping out your financial plan for the new year.
● 1 Know what you are saving for
It is important to be clear on your “why?” Your plan is YOUR plan. So, think about what your financial goals are, and why. For example, my wife and I are planning for new windows. We recently moved into a new home (new home for us, but an old house!). Our why is simple. It is too cold in our house!
● 2 Make sure your saving goals are smart and realistic
By smart, I mean choose your savings instruments wisely. In the last year, you could have saved in a bank CD or U.S. Treasury bond and earned less than 1%. Though there is certainly more risk with stock market investments, a simple S&P 500 index fund would have given you about a 16% gain. Realistic? Make sure your short and long-term goals are. Maybe a 2021 financial goal for you and your family is a new SUV. Be honest with what you can afford. Given your income and expense awareness, be realistic about an SUV purchase that is prudent for you. Maybe it is a Ford and not a Bentley. Again, be smart. With interest rates at near all-time lows, you should be able to buy that car at a great low rate. Don’t settle for a high-cost loan.
● 3 Find ways to reduce your expenses
It starts with knowing where your money is going. For most of us, seeing where our money comes in from is easy. But as we go about our daily lives it is typically less clear where the money goes. And, by month’s end we may say, “Where did it all go!?” By being aware of your spending habits, you can more easily note what your expenses are and where your money is going. I surprised my wife when I pointed out that between us, we were spending nearly $4,000 a year at Starbucks. Were. She quickly started making us our morning cup at home. A quick and easy way to reduce expenses.
● 4 Create a budget
I offer the “Blackhawk Wealth Advisors Budget Worksheet”. This is certainly nothing new and revolutionary. To the contrary, it is simply a sheet which lays out all your potential expenses to help assess where your money in going. As it does not pretend to be exhaustive in terms of all possible fixed or variable expenses you may have, it is at least a good start. Let me know if you would like a free copy.
● 5 Pay yourself first
This is a personal finance strategy of increased and consistent savings and investment towards your financial goals. This old advice helps you make sure that enough income is first saved or invested discretionary purchases are made. Here’s perspective on the real cost of that new car you may be yearning for. Consider you are thinking about a new car requiring $6,000 down and a $600 monthly payment for 72 months. You spent $49,200 (not including taxes, fees, insurance, and other new car costs). Chances are that car is worth very little in six years. If instead, you invested that money, and assuming an 8% annual rate of return, you would have $64,250 in six years. Maybe now your old car doesn’t look so bad….
Some more keys to making this planning task work. Be flexible. You just never know life’s unknowns. Update your map on a regular basis. And, have FUN with it. I hope this helps. Call me anytime with questions, John at 888-985-PLAN.
Happy investing!
John J. Gardner, CFP®, CPM®
BLACKHAWKWEALTHADVISORS.COM
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