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Financial Goals in 3 Steps

  April 16, 2014  |    #Eliminate Debt

For many, achieving the perfect body is a lifelong quest. Whether skinny and wanting to gain muscle or husky and wanting to trim down, it comes down to calories in and calories out. Being in picture-perfect financial shape is similar in that it comes down to money in and money out.

When striving for that perfect body we’re too often concerned with burning calories on the treadmill or stair climber and not focused enough on the calories consumed from alcohol, food and sweets. You didn’t need to drink that bottle of wine last night, did you? Similarly, we’re too often focused on how much money we earn and not concerned enough with how we spend the money we currently make. Did you really need to buy that bottle of wine last night?

Follow the next three steps to fatten your wallet.

Know how much money you make.

You’re talking to a friend at a bar and you mention that one of your 2016 resolutions is to make more money and they ask, “How much do you make?” What do you say? Do you inflate it? Do you include the bonus you aren’t certain to get this year? The reality is that most of us quote a larger number than we actually bring home.

A and Self Magazine study found that close to 50 percent of people have lied like Benedict Arnold to their partners about money. It’s safe to assume the statistics are no better with platonic relationships.

There’s, also, the possibility that you don’t know how much money you truly make. That requires math! Sure, you know the figure your boss quoted when you were hired or when you recently discussed your 2013 performance. But after you factor in withholdings such as Medicare, Social Security, state and local taxes, what you bring home is less than what your boss quoted. That money paid to the government was never really yours.

Of course, if you take advantage of employer-sponsored benefits such as health and life insurance, retirement savings and Employee Stock Purchase Plans (ESPP), the net amount of your paycheck is even less.  That money is yours, but it should be deducted when you review your monthly finances and then forgotten like New Year’s Resolutions on February 1. This will ensure you have money when it comes time for you to retire.

Knowing how much money you truly make is like knowing how much you weigh. Whether you are trying to lose or gain, it is helpful to know your current weight. This can only be done by getting on that scale. The same goes for money management. If you want to achieve financial goals, it’s helpful to know how much money you truly make. This is best done by calculating your net take-home pay. Ugh, math!

Know where your money goes.

By Christmas, many of us no longer count calories because it’s too damn hard. Why bother to count how many calories from wine you drank at the big holiday party when you don’t even know how many bottles you drank? It’s too depressing. It’s even more depressing looking in the mirror before going out New Years Eve and realizing those new jeans are just too tight. “Muffin Top” is a fun song, but not a fun look.

The same effect happens with money. Not paying attention to where your money goes leads to a similar depression when you realize you don’t have any. You had money at one point, just like you could fit into those jeans at one point, but now it’s gone. Where did it go?

If you track where your money goes, you can analyze the wisdom of how you spend. Granted, you may already know you spend unwisely, but do you know how unwisely?

Do a quick check up of how you spend. Calculate your total debt and include all your credit cards, auto, student and home loans and any other debt you have (yes, include that loan from your mother) and compare it to your total debt from last year on the same date. You can pull up statements online for all of your accounts.

Did your debt increase? If you made a major purchase in the last year then you certainly know why your debt increased. If you didn’t pay attention to where your money went, there is a good chance it increased, too and, like Reagan with Iran-Contra, you don’t know why. If your debt increased because you don’t pay attention to where your money goes, it is likely because you have spent unwisely.

If your goal is to pay off debt, save for a vacation or for retirement, is it wise to spend 40% of your income on clothes when you have more shoes than Imelda Marcos? Does it make sense to pay hundreds of dollars for cable when you can get Hulu for much cheaper and debt collectors constantly call you? Is it wise to buy each new version of the iPhone when they hardly change from one generation to the next and you have no emergency savings?

Create a financial plan.

After you weigh yourself, assess your diet and exercise habits and determine your goal weight, you create a plan to achieve your goal. The same logic applies to your finances. Once you know how much money comes in and where your money goes, you must create a plan to achieve your financial goal.

For many, it’s better to increase payments to credit cards or student loans to eliminate debt. If your plan is to save money in order to buy a house or to have a wedding, a reduction or elimination of unnecessary expenses is as smart a move as Neil deGrasse Tyson would make. All of us could benefit from increased contributions to a company-sponsored retirement plan or to a Traditional or Roth IRA.

While these are commendable goals, we need a plan to achieve them.  Below are three steps to create a financial plan.

  • Spend less than you make – Reduce and eliminate unnecessary expenses like Snapchat erases pictures.
  • Make one or two financial changes – Simple changes can make big differences that are hardly noticeable. For example, always create a menu and grocery list before you shop for groceries. This will not be enough to get you on Extreme Couponing, though.
  • Use the difference to achieve your financial goals – These or similar changes will save you a few dollars each month. Put the difference into an emergency savings account or use it to pay off credit card debt. You will quickly notice the gain and not feel the pain. Now we sound like a Saturday afternoon infomercial.

A financial plan is like a diet and exercise program for your money. To be successful with your money, similar to your health, you must have a strategy.

Follow these steps to improve your financial life and very soon you will feel like a member of The Barden Bellas.

2 responses to “Financial Goals in 3 Steps

  1. I like the analogy of using diets and weight loss to correlate with the challenge of building wealth and budgetting.

    This post is definitely realistic and I love the steps you guys provide. Especially knowing where your money goes. A lot of people just blindly spend their money, as I use to. But knowing how much and where you are spending your money is a must!

    Thanks guys =D

    1. Thank you Kevin! We often find that the food/diet/fitness analogy works with budget/spending/income. I mean, who doesn’t want to be sexy and rich! 😉 Glad you enjoyed the post. Like we say, "be #MoneyConscious!"

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