If you don’t know where you’re going, you’ll never get there. The first step in fixing your finances (and your number one financial goal in January) has to be putting a clear money plan in place for what you want to achieve with your money this year.
The beginning of the year is the perfect time to think about where you are, where you want to be, and what you need to do to get there. This does not involve the usual New Year’s resolutions. We’re talking about a clear, comprehensive plan of what you want to accomplish this year and in the years to come plus how to save for them.
Short- and long-term plans
Where do you want to be, financially speaking, next month? How about next year, or 5 years, or 20 years from now? Start big.
As the saying goes: a goal without a plan is just a wish. That’s why it’s so important to put a money plan in place, and to see how your money can help you to reach your goals. A money plan will serve as a detailed map that shows you exactly where to spend your money, where to save, and for how long.
Sit down and draw up a list of your personal goals. Now break that list down into long-term (10 plus years from now), medium-term (one to 10 years) and short-term goals (things you want to get done this year). Now rank them in order of importance.
The more specific you are, the better. For example, rather than saying you want to retire early, determine the exact age at which you want to retire and the exact amount you’ll need. If you’re struggling, get a trusted friend, relative or adviser to help you.
Simplify your financial plan. Live better.
Every adult – no matter your financial situation – needs a money plan to help you make decisions, and to keep you on track for your short-, medium- and long-term goals.
Your money plan should include 4 key ingredients:
- Budget: including your monthly income and expenses, your net worth, and your debts
- Goals: remember to be specific (for example, instead of saying “travel” say “2-week holiday in Zanzibar next July”)
- Extra expenses: including your investments (retirement, education, etc.), insurance, debt repayments, and emergency fund
- Expected life events: including your children’s schooling, your retirement, etc.
It’s important to revisit your plan regularly and update it as circumstances change. After all, life is full of surprises and you never know when unexpected expenses might arise. In the same way, you also never know when you’ll enjoy a salary increase or a financial windfall.
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