6 Smart Money Tips for Creating a Short-Term Financial Plan

Short-Term Financial Plan

Continuing with our rocks, pebbles and sand analogy, we’ll discuss your pebbles or short-term financial plan and how it relate to your long-term plan. Just as Mariah Carey supported Nick Cannon, your short-term financial plan supports your long-term financial plan.

Your rocks are your one to three big financial goals that could include saving for retirement, a trip around the world or leaving an inheritance. If you need heirs, email us. So, your rocks are your biggest financial goals and take the longest to achieve.

Your pebbles are your financial goals that you can accomplish within three to five years, such as maxing out your retirement plan contributions or making double payments towards your mortgage. These financial goals support your long-term financial goals.

For example, if one of your long-term goals is to retire by 65, then maxing out your retirement plan contributions each year for the next three to five years supports that. After these three to five years, you might continue maxing out your retirement plan, but you can cross that bridge when you get to it. The idea is to cut your long-term, larger goals into smaller, manageable goals.

Below are six steps to creating a short-term financial plan.

1) Set one or two S.M.A.R.T. short-term goals related to one to three long-term goals

You can’t eat a whole piece of chocolate cake with one bite. It’s best to take small bites and savor each one. (I might want cake right now.) Similarly, achieving your long-term financial plan will be easier if you cut it into small bites.

For example, if you want to increase your net worth to $500,000, you may need to both pay off debt and increase your savings. Two worthwhile short-term goals to support your $500,000 net-worth long-term goal are to invest an extra $100 a month in a retirement account and rebalance your portfolio semi-annually.

2) Adjust your cash flow

If you eat too much cake while sitting on the couch with a glass of wine, as I’m inclined to right now, you’ll gain weight because you have more calories going in than going out. Losing weight comes down to calories in versus calories out. Saving money is similar in that it’s about money in versus money out.

This is a velvety-chocolate way of saying don’t spend more money than you make. Reduce your daily and monthly living expenses so you don’t use credit cards. Put extra money at the end of the week or month towards your short-term financial plan. Use companies such as our friends here to pay off your debt faster.

3) Adopt the NSE philosophy

NSE stands for not-so-expensive. The philosophy of NSE is to find slightly cheaper alternatives to what you like. There’s a particular $80 bottle of wine that would go perfectly with my chocolate cake, but there’s a particular new box of wine that’s quite good and serves four bottles worth of wine for a grand total of $19. This is a perfect NSE alternative for my date with the couch.

Alternatives always exist. Shop on eBay or at outlets as opposed to high-end fashion malls. Rather than taking the family to the movies, rent one from iTunes or Red Box. If you like sushi, go to a happy hour rather than at 7 PM when the restaurant is packed or use a Groupon. Put your extra savings towards your short-term financial plan.

4) Create a monthly plan

Not having a financial plan can lead to poor decisions. If we don’t have healthier, alternatives sweet such as red grapes or blueberries in the house, I might actually eat that whole chocolate cake. In a moment of weakness, I may just dive head first into it. If I plan my grocery list and have healthier alternatives, I may make a better decision. One might ask how this illusory cake got into our condo to begin with and I just don’t know.

Similar to my diet controls, it’s important to have a monthly plan of activities for which you budget and that are NSE. The Internet makes creating a frugal monthly plan easier than ever. You can search on Groupon, Living Social, and local websites to find out what’s going on, how much it costs, and if there are discounts or promotions.

Again, put any savings from your monthly plans towards your short-term financial plan.

5) Improve your net worth

The fact is that either having debt or not having emergency savings makes accomplishing any long- or short-term financial plan difficult. The interest from your debt eats away at your money. Emergencies without emergency savings thwart accomplishing financial goals. Once you pay off your debt, put your monthly payments and interest savings towards your short-term financial plan and emergency savings.

6) Manage your budget and cash flow

It’s not enough to create a budget. You must, also, adjust your cash flow and walk away like I’m avoiding that cake and wine. Both require ongoing attention if you’re going to be successful with your long- and short-term financial plan.

We review our budget each payday. Each payday we wake up with our direct deposit in our accounts and we pay all of our bills that are due before our next payday. This means most bills get paid early and that no bills are late. Any surplus after we withdraw our budgeted gas, social and grocery money from our account is used to fund our short-term plan. We use Mvelopes to budget our money in appropriate categories.

Because some bills, responsibilities, and activities fluctuate from month to month, we review our cash flow each payday, as well. This monitoring lets us spend less than we make and put the savings towards our financial goals.

Incorporate these six steps and marry them to the steps to your long-term financial plan.

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Comment List

  • Doug 28 / 09 / 2014 Reply

    Managing cash flow is one of the first expensive lessons I had to learn to get control of my financial future. Most people go with the flow in their life, and that mindset bleeds into their personal finances, credit, and debt reduction strategy.

    • John Schneider 01 / 10 / 2014 Reply

      Yes! As we often say, you must be #moneyconscious. You can’t go through life unaware cause it will eventually haunt you. Personal finances is no different. Thanks for reading and commenting.

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