In the midst of the recession it was extremely difficult to set yourself goals. The level of uncertainty was such that for many it was a matter of survival. Holding on to a job was the main goal in life simply so that you could meet your regular bills and feed the family. There were plenty of people that found this impossible and there are still many challenges to face. The first challenge which will help you face the others is to set yourself goals for the future and thereby provide you with a strategy for financial success.
It inevitably involves a little guesswork and is likely to need to adapt as the future becomes the present and circumstances change. Here are 6 things to think about in the whole process and they are things that should remain in the back of your mind along your journey in life:
- Your best estimates are the only way you can start but make sure you include everything including your small daily spending because it adds up over a month.
- Change targets when circumstances require it.
- Regard the goals as the end of the strategy rather than steps along the way
- Make priorities between your goals, short term as well as long term.
- Constantly revise to keep your plans valid. You need to ensure that the revision truly reflects the new circumstances.
- Don’t get obsessed.
It is essential to have a plan and that means a budget. You must write down your current income and expenditure to see where you stand currently. There may be monthly commitments can be reduced but there will also be some things that are due at certain times of the month and perhaps quarterly or annually. In order to manage your financial affairs properly you must understand the importance of cash flow and take it into account so you can meet your commitments.
If you are carrying any expensive debt you should look to settle it as soon as possible. A good example is credit card debt. Too many Americans have balances at the end of each statement period that they are not settling in full. If you are simply paying the minimum the credit card companies require you will then be paying a high rate of interest on the remainder. The companies are happy because that is how they make their money. From your point of view you will see that your balance hardly falls. If you negotiate a nation 21 cash loan and pay the balance off in full you will pay a much lower rate of interest and begin to ‘save’ money even though you have borrowed. At the end of the term when all the installments have been paid you will be in a much happier position.
Some of your budget estimates may prove to be inaccurate but you need to have a starting point even if some prove to be inaccurate fairly quickly. You will have accepted the need to organize your finances and that is a start. Instead of your monthly card payment you should enter your loan commitment and see where you now stand.
The End Game
You need to think about where you want to be; perhaps in as comfortable position in retirement as possible? That should be one of your goals. The individual decisions you have to make to get there become very important.
You may well have short term goals and long term ones. They may vary between the urgency of paying off an impending bill to saving an emergency fund, saving towards educational or medical costs and retirement provision. Try to get then down in order of importance and understand what impact that will have on your overall finances.
Circumstances may arise in the future that require you to amend your goals. You must be flexible and make those amendments. Clearly something like a recession is beyond the control of the individual but there are other future events that can alter your situation as well.
Life is a daily experience and it is important to find balance between your ultimate goals and the pleasure of the trip. Of course you need to be mindful of the targets you have set yourself but not to the exclusion of the occasional treat. As long as you understand where you need to go ultimately and bought into the need for a strategy you should have a good chance of getting there.
You have to recognize from the outset that you have to accept self-discipline as part of your future. It does not automatically mean sacrifice; more organization. It is clear that there is little point clearing a credit card debt simply to build it up again. Your card should be used purely for convenience and only as long as you can pay off a month end balance in full to avoid interest.
Too few Americans seem to have recognized the need for good financial management even though it is obvious that there will come a day when they will no longer have a regular pay check coming in. It seems that over 20% are continuing to work after retirement age precisely because they cannot afford to retire. It is your choice! If you cannot envisage retirement because you love your job then fine. However where you have no choice but to work because your finances are in poor shape then that’s an altogether different thing!