Starting the Year Right
It is a new year once more and, like in years past, it is again a time for resolutions to throw away bad habits and bring in the new. The most compelling reason for this is to make things better—in health, relationships, physique and, yes, even in finances.
For this new year, people who want to start right on their finances should do the following four concrete steps in making 2017 their best year ever:
Take a stock of where you are now. This means knowing where your resources are, where you source them. To know where your resources are, simply list down all that you own—like your investments, cash, real estate and personal possessions; and what you owe—your credit-card balance and mortgage. Having this personal statement of assets and liabilities (SALN) will give you a snapshot of the wealth you have built over the years, and also the possible debt responsibilities. The SALN also gives a glimpse of your net worth—if it is positive or negative. Creating this will help you have a firmer grip on how to navigate toward your future.
Knowing the sources of your income is essential, too, as this would provide you with the raw material with which to build your future. To do this, simply list down all your income sources and how much they provide you on a yearly basis. While you’re at it, you can also list your expenses so you know how much money is left at the end of each month or year. This savings are very critical as this would be used to fund your dreams for the future.
Take a look where you want to be. Once you already have a handle on where you are now, it’s time to chart the future. List all of your dreams for the future—vacations, purchases, life events (50th wedding anniversary, for instance), college funding for your kids, business, retirement, etc.—list them all. Be as exhaustive as possible. Also, assign a price tag or budget for each dream.
In listing them down, it greatly helps if you create your own timeline so you could visualize it better. Simply make a line between now and the foreseeable future and divide the line into smaller segments, with each division
representing a year from now.
Now the trick is to identify in which year you want each goal happen. Because, knowing when it would happen and how much is needed will determine how much you should set aside starting today. If you plan to simply save up for it, then dividing the number of years with the target amount will give you the amount needed per year (per month, if you divide it further by 12). But if you plan to invest it then it would require a smaller amount, especially if the
goal is still far into the future.
Know your values. Not all goals are important, and you cannot fund them all immediately. To make things easier, you should prioritize—fund first the ones that are important to you and your family and, if there is extra money, fund the “secondary” goals, as well. Your values dictate which goal you should fund first and, on a larger scale, what your goals are. Some people prefer traveling, some prefer building their own home, some prefer giving to charity, while some prefer spending time alone in contemplation. Each has uniquely personal values, and as unique as the values are, so also are the financial plan. If you have a financial advisor, he or she should take due consideration of your values before anything else as this sets the tone of your plans.
Commit to a system in managing your resources. Monitor your income and expenses using a spreadsheet, or, if you are just starting out, a simple pen and paper would do. Monitoring your monthly cash flow will let you see how much money is left after spending on everything.
Why is this important? Because the excess cash each month and each year funds your future. If you have no excess cash, then cutting unnecessary expenses becomes a need if only to fund your stated goals. Its this simple: no excess cash means no funding for the future.
Talk to a professional. No great basketball team or individual athlete ever made it by themselves. They have a coach and a trainer, too—an expert in the field that helps them achieve their goals. It is the same thing with personal finance: having an expert to help you navigate the future. Go for people who have the knowledge, skills and ethics, who have your best interest first and foremost in mind.
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Rienzie Biolena is a registered financial planner of RFP Philippines. To learn more about personal financial planning at the 59th RFP program this Janaury 2017, e-mail info@rfp.ph or text <name><e-mail> <RFP> at 0917-9689774.
Source: http://www.businessmirror.com.ph/starting-the-year-right/
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