jjmoneytalks Finance, Finance 101

Make a Change! Recognize and Decide!

Recognize and Decide Where you are and Where you want to be!

Dream boards, future goals, and future plans. Can you really dream of a future if you are not willing to work for it. The answer is yes; however, it will only ever be a dream. The way to make dreams into a reality is to recognize where you are at and then decide that you want to move forward. Without those two steps it is inevitable that you will be walking around in a round room never to end. By opening that door of that “round room” and getting out is how to move forward.

Where am I at? As discussed before, in my Getting Started post, figure out where you are, where you are deficient and what your current reality is. Then, take action to formulate a plan and set little goals along the way to get to where you want to be.

Goal Setting

Decide where you want to be, decide what your philosophy to get there will be, and then set smaller goals to help achieve these goals. As discussed in MBA programs, leadership seminars, and other various places, your goals should be SMART goals. Specific, Measurable, Attainable, Relevant and time oriented.

An example of this is, “I would like to have 10 million dollars saved by the time I am 70 for retirement.” For many this seems like an outlandish goal, however, if you were someone saving 40% of their income does this seem that unrealistic? What makes it realistic is the “step goals” to get there. “Step Goals” are the smaller goals that help you achieve your future goals. Don’t think your future goals are set in stone, in you want or need to change them because your circumstances change, then do so.

The additional piece I mentioned earlier is the philosophy of how you will get there. The philosophy or the “way” you will get there is relevant because it can help you maintain your inner fortitude when presented with an option that will help you or set you back. For myself, I prefer value investing or secular growth investing (click on the links to learn more). I do not want a get rich quick, and would prefer to work hard both as an employee and help others achieve their goals as an entrepreneur while spending less then I make to achieve my goals. That is the “way” I will get there. Your philosophy can be what you choose. For many billionaires, there “way” was to create a business and invest/reinvest everything back into the business; though this has added risk, for them, it worked out. Choose your philosophy or “way” that suits you.

Goal Accountability

Once your Future goal is set, and your step goals are made, start with the first two or three step goals and share them with an accountability partner. This person is someone that you trust or respect and that you are not afraid to be honest with. Being proud and pretending that you made (or lying) that you made your goal will only hurt you. Being honest about the goal and even more specific reviewing why you missed one is key for evaluating the aggressiveness of your goals. If your goals were to difficult, you may want to make them slightly more attainable but not attainable enough that you meet them with ease.

Your partner should also help you keep your interest in your goals. I don’t recommend someone who hates finance to be your personal finance accountability partner. In the same way you wouldn’t want a couch potato to be your marathon running accountability partner, find someone in which can help you achieve your goal or better yet, someone who has already attained it.

Change your way of life

People

Meeting goals may mean change your lifestyle. If you go “clubbing” or “barhopping” with coworkers who don’t save any money, they aren’t going to help you. Surround yourself with people you make you better or improve your character. These are the people you are going to want to be rich with anyways.

Read and learn

Improve yourself, improve your trade or skill, or improve your knowledge in a hobby or interest. All of these will make you better today then you were yesterday. The truth is money doesn’t make you happy. $10 million in a bank does nothing for you. How you spend that money, who you spend it with, and what you spend it on can make you happy, but who you are with it defines how much happiness out of life you will truly get.

Possessions

You may want to gain more stuff because that is what you enjoy. I caution you this. From my nomadic lifestyle, possessions have caused added stress every time we move either because we have too much stuff we don’t care about or something we care about gets damaged. Possessions can be fine, especially if you can afford them. Attachment to possessions is what I don’t recommend. There should not be many, if any things that are “irreplaceable;” Something will inevitably happen to it. There is a difference between cherish and attachment. Cherish important heirlooms and meaningful gifts, but don’t be so attached that it crushes you if something happens to it.

Activities

Is wealth worth attaining if you lose your health? Hopefully, your answer is no. Whether it is your interests, hobbies or activities, start or continue doing these throughout your journey. Maintaining your health will help you lower healthcare costs in the future. Interest and hobbies can put you in touch with people you actually have interests with and want to be around. In the end, don’t just chase money but live your life while working hard to earn/make it. Don’t sacrifice it for your life though.

Moving Forward

Now that you can start by setting your goals and attaining them. You can achieve anything you want to achieve. How? Decide. You know where you are at. If you make it a priority, it will be. Not sure where to start? Set a goal for 100/0, then 80/20, and eventually 60/40 and beyond. While you are figuring out what to do having capital build up will only help you on your decision.

jjmoneytalks Finance 101

Getting Started

Personal Finance. Where to start?

This is always a difficult question. I have had many friends and family ask this before. I feel bad to always retort their question with a question. Where are you at? By determining where you are at, you then can formulate a plan for the future. Your priorities will be different from mine, or someone that is entering retirement. If you are starting you need to develop all aspects of your finances. Whereas if you are going into retirement, you need to change your investment strategy to accommodate withdrawing if it isn’t set to do so.

Simple things like these is where I see most people mess up. Surprisingly, people who usually need the most help don’t know it because they are already doing well. People who aren’t doing well know they need help, because well, they aren’t doing well. So, wherever you are at let’s get started.

I want to lay out an approach and I will cover it in more depth in upcoming posts. This is just to provide a quick overview:

RECOGNIZE AND DECIDE

Don’t beat yourself up too bad. You need to decide that you are going to do it and do it. You can beat yourself up along the way, but, the first step is recognition and decision.

INCOME

Find out what you actually earn. Determine your income annually and monthly. Whether you are self-employed, an employee for someone else or retired, it doesn’t matter, you need to know what is coming into the checking account every month (or year if they are annual installments).

EXPENSES

Track your expenses. Go through the last couple of months and look at your checking, savings, and credit card (if you have them) statements. Determine the monthly amount of expenses and start to categorize those expenses.

BUDGET

Start with 100/0 spending/savings, then progress to 80/20, and then kill it and try and do 60/40. Why start with spending 100 percent and saving 0? As I said, depends on where you are. If you are at 120/-20, getting to 100/0 just stops the growth of debt. For many, that is a great place to start. Develop a “Macrobudget,” this is a budget with the major categories and is what I currently use. If you nitpick every single aspect of your budget you are less likely to follow it and give your self no wiggle room. See more on how to “Macrobudget” here.

INSURANCE

The next important aspect is insurance. This includes health, home or renters, car, and life. These are important to shift the risk and make someone else responsible for huge catastrophes you would be unable to afford. If you don’t have one already, a Certified Financial Planner (CFP) or Finance Professional licensed in these services can provide you with the assistance or products you need. MAKE SURE THE TYPES OF PRODUCTS YOU GET ARE SUITED TO YOU, NOT ONE SIZE FITS ALL.

SAVINGS

Starting out, I would recommend before anything else that you build up a one month of income as an emergency fund and work on slashing the expenses or upping the income to achieve 100/0 budget. After we get past the 100/0, now we can start thinking of building up the emergency savings and investing to build wealth.

BUILD WEALTH AND OTHER THINGS

After getting the foundation laid, this is where it gets fun. Setting goals and reaching new heights, dreaming and achieving those dreams. Everyone’s dreams and desires are different. So, set your dreams and goals and succeed.