![What does financial paradise look like? [flickr: antwerpenR]](http://www.getmoneyenergy.com/wp-content/uploads/2009/12/financialparadise.jpg "What does financial paradise look like? [flickr: antwerpenR]")
It’s a good time to draw up some financial New Year’s resolutions if you haven’t yet. Sure – don’t call them New Year’s resolutions if you don’t want to – it’s a financial plan for 2010 that I’m really talking about.
Although we are still in the thick of the holiday season, take a quiet day or two to yourself before the rush of New Year’s Eve to take some time to jot a few notes about what goals you have for your money in 2010. Holidays can still be a busy time right through New Year’s, but if you want to stay on top of things you won’t want to forget that it’s not only the end of the month, it’s the end of the year.
And it’s not only the end of the year, it’s the end (or beginning) of a new decade.
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Financial Planning For A New Decade
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Did you achieve your money goals this past year? This past decade? Think back to where you were 10 years ago. How old were you? Where were you living? What were your main financial difficulties at the time – and have you solved them all now?
Below I’ll list some points for you to think about as you begin to write down your financial game plan for 2010 and beyond. The main thing you should do is develop a very clear picture of what financial freedom looks like to you. Make it specific – what will you be wearing? What will your perfect day look like? Do you own a business, or have you sold three? Do you run a philanthropic organization? What do you see when you wake up in the morning?
Let’s design some even more specific, intermediary goals now that will help you get to that point. Remember, money is what you trade your life energy for. If you care about your life, you need to care just as much about your money.
Networth and Cashflow
It’s a good idea to keep a yearly, bi-annual and even quarterly review of these key financial indicators along with other aspects of your portfolio. On a monthly basis you can make sure that your financial decisions lead you to either increase your cashflow or your absolute networth or both. This way you can ensure you keep moving ahead in the right direction.
Don’t neglect cashflow – the sum of all forms of monthly income (passive, alternative, job) considered with all monthly expenses. You want to increase the amount of incoming cashflow higher than your monthly expenses, and to do this on a monthly basis. If you can keep an excess of incoming cashflow at sustainable levels, this is the most basic understanding of financial freedom. That’s why you shouldn’t take your expenses lightly. Monitor where your money escapes your life as much as where it enters your life.
As for side income, if you need a plan for generating some more side income, perhaps in the form of dividends, open up a fee-free, commission-free dividend reinvestment plan.
In the general category of outgoing cashflows, put all your extra spending, one-time big ticket items and recurring expenses such as your mortgage payments. There are all kinds of crazy ways to cut back on expenses and save some money. The key is to find a plan that you can be motivated about or one that inspires you to stay the course. For me, it’s coming up with ways to save money by only eating the minimal amounts necessary for proper nutrition.
Savings, Insurance, Emergency Funds
Forming another dimension to your portfolio are all the buffer funds: your savings accounts, insurance and emergency funds. Aren’t these all about the same things, really? Protecting yourself and your family’s lifestyle and wellbeing. savings and emergency funds. insurance. I’ve said before that I think it’s probably best to have more than one emergency fund.
Financial Education
How about some plans for increasing your financial knowledge? Even the experts need to keep up on the sectors that they study or the tax laws they consult. You might have above-average knowledge of high-interest savings accounts or stock investing, but what about looking into real estate investing or options (not all options strategies are equally risky, in case it is risk that has held you back).
Consult a good list of personal finance and investing books, or peruse through the finance section at Borders or Barnes & Noble. Even a recent money magazine can help point you to news you weren’t aware of (in addition to reading great financial blogs such as this one, of course;)).
Tax Planning
Taxes are not my forte, but suffice to say that they are enough of a hassle that you want to start planning for taxes throughout the whole year, not the month before they are due. Create a folder into which you immediately place all relevant tax documents such as pay stubs, bonus payments, etc. and keep track of what you’ll need come filing time.
If you’re new to doing your own taxes, start now the process of finding a tax assistant or where you will file. For many people, filing online is easiest if your taxes will be simple and you can manage them on your own. I’ve personally filed mine online for the past 6 or 7 years and I’ve learned a great deal from doing it myself. It may not be for everyone, though.
Prepare Yourself For Abundance
The name of the financial game is freedom. If freedom is the destination, draw up the plans you need to get there and how long you expect it should take you. You don’t have to spend your life toiling away with nothing to show for it. And if you’re just getting by comfortably, you can still push your portfolio to the next level by adding an additional cushion and making it more recession-proof and sustainable.
The bottom line is that this is the best time to prepare for the financial year ahead. Figure out what financial mistakes and setbacks occurred this year and why (clue: the answer isn’t simply “the economy” – get more specific than that – many people still prospered and to date haven’t lost much or any money at all). Then construct fortress-like protections to help ensure they won’t be able to happen to you again.
Also, there’s just something really exciting about the thought of making a financial plan for the new decade. 10 years ahead! And it all starts now. A nice, fresh, clean slate of possibility:)
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{ 4 comments }
I hate to say this–I really don’t have my plan in place for next year.
But this post has given me the necessary kick in the pants.
Yes, I still need to sit down and do up my formal plan and goals as well… it’s great to have the general plans in your head, but it’s important to write it down (go full out with charts, graphs, proper balance sheets, etc.) and make it concrete! It can take a while though, so either set aside a working day or be able to spread it over two days.
2010 Locked and Loaded!
Our approach isn’t to look out a year though … we look out 7 years. We sit down, dream about life in 7 years, and then back into what it will take to achieve that over the next 7 years. We use, as a starting point, the previous year’s 7 year plan. Most years, the end goal is the same and it is a simple matter of adjusting the long range target numbers based on life’s gifts (like children, raises, etc.). Some years, like 3 years ago for us, major changes happen and a whole new 7 year plan evolves (like we are going to sail around the world on our boat).
As our life has ebbs and flows, 7 years is the number of years that seems to convey the right amount of dreaming and certainty for us. We found focusing on just 1 year at a time didn’t provide enough of the puzzle. 1 year didn’t allow us to pay off our house, for example, but 7 did. 1 year didn’t allow for us to pay off our car, but 2 did. 1 year didn’t allow us to complete college, but 4 did. So, we went for the maximum time horizon that we felt comfortable with, making the immediate year just part of the bigger 7 year plan.
We’ve been doing this type of planning for the past 13 or so years and it has provided us a fantastic vehicle for looking long term.
Agreed with MoneyEnergy, you must actually write down your plan. We have ours posted on the refrigerator (the long term goal of 7 years, plus the current year we are in).
thanks for the comments, Sailboat. 7 years is an interesting number – 10 definitely seems like a good round number, but it is harder to make concrete because it is so long. 7 seems just big enough to still be “long-term” and easy enough to conceptualize/plan for. Congrats on your sail trip, hope that goes well – please come back and share the details! Would be interesting to see a post about your expenses for such a trip.
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