Financial Goal Setting Workbook

Transcription

1 Financial Goal Setting Workbook How To Set Financial Goals That Actually Make You Happy From The Ways To Wealth By: R.J. Weiss CFP

2 Introduction Life moves pretty fast. If you don t stop and look around once in awhile, you could miss it. FERRIS BUELLER Life moves fast. To paraphrase our spiritual leader Ferriss Bueller, if you re not careful, you could miss it. When it comes to money management, it seems as if there are dozens of different objectives. Saving for retirement, car, college, house, vacation, maybe enjoying life once in awhile. All these things are important. But, where should you start? What s then the most efficient path? What s going to bring fulfillment and purpose to your life? The purpose of this financial planning workbook is for you to gain some clarity. For you to take a step back, find out what s working, what s not, and to discover what truly matters. I m going to do that by asking you to complete a series simple exercises and thought-provoking questions. So pour yourself a beer or a glass of wine and set aside the next 30 minutes to think. Cheers, RJ

3 Step # 1 Get Accurate Data One of my core principles is to think of your personal finances as a business. This allows you to get an accurate, objective view of your past, present, and future. Step # 1 is all about getting a clear, honest look at your current financial situation. Your current financial situation is composed of: 1. Assets - What you own 2. Liabilities - What you owe All we re going to do today is to add them up. In business this is called a balance sheet. In the personal finance world, some call it a net worth statement. You need one. Take time right now to fill in your assets and liabilities in the template provided. ACTION: Complete this net worth statement Quick Thoughts You may have this information through a software like Mint or my favorite Personal Capital (affiliate link). But for once try it manually. This is about where you are today, not mistakes of the past. So, no need to judge. Congratulations! You now have a starting point you can measure your progress.

4 Step # 2 Setting Priorities When it comes to financial goals, you can do just about anything. You just can t do everything. A solid relationship with money means focusing on the goals that provide you the most benefit. So, what s most important to you? Is it getting out of debt? Becoming financially independent? Building an emergency fund? Travel? Cutting expenses? A good beginner framework for building financial goals is Dave Ramsey s Baby Steps. The steps are to: 1. Build a $1,000 emergency fund 2. Pay off all debt besides house 3. Save 3-6 months of expenses 4. Invest 15% of household income into retirement 5. Build college funds for children 6. Pay off home It s a simple framework for what you should focus on next. Once you have a $1,000 emergency fund, you then attack the debt besides the house. Once your debt is paid off, you save for a 3-6 month emergency fund, etc The idea is you re only focused on one goal at a time. It s easy to disagree and poke holes in the baby steps. And if you ve read a few books on personal finance, you can and should. However, one thing I agree on is--if you have high interest debt, that s your first priority. I d stick with the steps until you ve saved at least 3 months of an emergency fund. (With an exception being if debt is low interest and your employer matches 401(k) contributions). So, what should you be focusing on? That s up to you. Setting a goal such as losing weight can be exciting. Financial goals on the other hand can be frustrating. It involves making very important decisions with a whole bunch of assumptions.

5 It s this reason that we tend to get stuck and forget the entire financial goal setting process. But despite the uncertainty, we still need to have goals. It s just that the process is a bit different. There s a process, which can be called a movement, in the financial planning called Life Planning. Developed by George Kinder, it s summarized as: Life planning focuses on the human side of financial planning. In life planning we discover a client s deepest and most profound goals through a process of structured and non-judgmental inquiry. Then, using a mix of professional and advanced relationship skills, we inspire clients to pursue their aspirations, discuss and resolve obstacles, create a concrete financial plan, and provide ongoing guidance as clients accomplish their objectives. The foundation of life planning is centered around the client s answer to three important questions The idea is to uncover what s truly important to you, and from experience, it does exactly that. So step # 2 is to take the time now to write down your immediate thoughts to following three questions. Question # 1 Imagine you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go. Don t hold back on your dreams. Describe a life that is complete and richly yours.

6 Question # 2 Now imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life and how will you do it? (Note that this question does not assume unlimited funds.) Question # 3 Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do?

7 Step # 3 Your Goals What you should have noticed is that the questions get progressively harder. It s easy to think of what you d do if money were no object. It s hard to think about what you regret. For many of us, it s painful. So, what does this have to do with financial goals? When you understand your priorities in life, you then make financial choices that reflect these priorities. Take time right now and read through your answers. Next, list the five things that are most important to you in order of priority: With your priorities set, now list five things you d like to accomplish financially by this time next year Now that you have your long-term goals, it s time to put these into short-term goals. What do you need to do within the next month? Set a 30-day goal for each of your 1-year goals

8 Step # 4 Track Your Progress If you set goals without monitoring your progress, it s a waste of time. Financial goals are an ever-changing process. Part of this process is to continually revisit your goals, making course corrections, and setting new goals along the way. To start, you want to revise and set new goals every 30 days. Once things are under control, you may find a rhythm of once or a quarter or once a year sufficient enough. Some of the goals you ve set, such as paying off a credit card, might be accomplished in shorttime. Others such as saving for retirement, could take years. Long-term goals are important, but so is enjoying today. Once you do this process a few times, you ll learn how to find the right balance. To make sure you re on the right track, I suggest tracking some basic financial numbers. Then, to write down a few thoughts about what you were able to accomplish over the last month. Month # 1

9 Month # 2 Month # 3 Month # 4

10 Month # 5 Month # 6 Month # 7

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12 Month # 11 Month # 12