If your “to-do” pile contains a bulging file of paperwork for your tax return, you have plenty of company. The months leading up to April 15 are when everyone gathers and reviews their W-2 forms, investment statements and donation receipts.
The first few months the year—when your finances are front and center—is the perfect opportunity to start (or continue) building financial security. There’s nothing more powerful and comforting than feeling confident about your financial future.
If you’re stuck or don’t know where to begin, these five steps will get you moving:
1. Know Your Numbers: This is one of the most powerful steps you can take. Add up all of your assets: bank and investment accounts, college savings accounts, all retirement plans, the value of your home and other real estate, cash-value life insurance and all other assets.
Then, subtract all your debt: mortgage, car loans, student loans, and any rolling credit card balances. The result is your net worth, a critical piece of your retirement plan. The level of net worth is not as important as its growth over time. Focusing just on assets, it may seem that you are not getting ahead – especially when the investment markets are down. But paying off debt has the double benefit of increasing your net worth and decreasing your future interest expenses.
Next, calculate what you spend. “I don’t want to track every latte and People magazine,” one of my clients moaned. But I encouraged her to do it anyway, even just for a week. If you don’t know where your money is going, then you can’t create a specific plan to add to savings, pay down debt and move yourself along the path to financial freedom.
You can track spending with software like Excel or Quicken. I’ve turned many of my busy clients on to www.mint.com, and I use it myself. This free tracker is easy to use and secure. Once you set up your account, Mint’s software automatically tallies your expenses, assets and debts. It even prepares helpful pie charts and budgets. And you can access it as a mobile app too.
2. Create a Vision: What does financial freedom mean to you? Here’s what some of my clients have said:
- “Getting totally out of debt, for once and for all.”
- “Paying for college for my kids so they don’t have student loans and part-time jobs, like I did.”
- “Retiring at 55.”
Dream big! Choose something that inspires and motivates you. Consider creating a “dream board” with your partner or a friend, using pictures showing the life you imagine yourself having.
3. Be SMART: What steps can you take today, next week, next month to move yourself and your family closer to that vision? Work backwards from your vision to create goals that are Specific, Measurable, Achievable, Realistic and Time-Based. They’re the ones most likely to succeed.
Our financial goals move within reach when we make them automatic and tangible. My clients “Mimi” and “Scott” recently set up an auto-transfer to move $100 each month from their checking account into a 529 college savings fund for their 2-year-old son, Taylor. That may not seem like much, but this investment has 16 years to grow. And these parents are so excited about this painless way to save that they’ve vowed to increase their monthly investment when Mimi returns to work.
4. Educate Yourself: I know, numbers are “not your thing.” They can be overwhelming, depressing and scary, especially when you’re thinking long-range. So take small steps. Read an investment site—I like the practical advice in Money magazine and the tools and tips on the Financial Planning Association Web site http://www.fpanet.org/.
5. Get Support: When you became a mom, many people shared meals, gifts and encouragement. Tap some of those supporters as you create and implement your financial plan. Professionals—your accountant, estate planner or financial planner—can do some of the heavy lifting for you. But ultimately, only you can shoulder the responsibility of making sure you’re planning today for the future of your dreams.
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