Where Are You Now? Where Are You Going?
You and Christopher Columbus probably have something VERY IMPORTANT in common. On October 10, 1492, Christopher Columbus had no idea where he was, where he was going and how he would get there! Does this sound like your financial plan?
After 30 days on the high seas, on October 10, 1492, Columbus’ crew wanted him to turn back to Spain because their food and water were dwindling. They were sailing westward based on speculation and hope that they would land in India but in reality, they had no clue whether or not they would reach their destination or even die at sea. The crew threatened to make Columbus walk the plank and planned to return to the safety of their home port. Columbus and his #2 officer convinced them to allow them to continue for three days before full mutiny. Luckily, two days later on October 12, 1492, they saw land of a Caribbean island.
We now celebrate Columbus Day instead of his demise!
Are you in a similar situation?
Do you know where you are financially? Could you tell me right now what is your total amount of routine monthly household expenses? Can you tell me right now your net worth? Can you tell me right now what are your goals for passive income, active income, emergency fund and net worth 10 years from now?
Most people don’t know their actual numbers! If you don’t know where you are right now and you don’t know where you’re going, then how on this round earth can you possibly chart a course to get there?!
Are you relying on speculation and hope like Columbus did? Or do you have a plan?
If you can’t define your goals for financial freedom, how will you even know where you are when you get there?! When Columbus landed on a Caribbean island on October 12, 1492, he called it the “West Indies.” Why? He thought he was in India! He didn’t know where he was when he got there! He was off by a whole hemisphere!
If you don’t know where you are right now and you truly want to find the most efficient path to get from where you are today to where you really need to go and AVOID WASTING 1-2 DECADES GETTING THERE, you need to first define where you are and where you are going! The goal of this article is to help you organize your thoughts and collect the data from your historical finances to define your financial STARTING POINT, then set specific measurable GOALS with actual deadlines.
If it ain’t writ, it ain’t thunk! Your analysis of your financial starting point and goals must be in writing.
Your Crucial Homework!
Following is a list of questions you need to answer in writing to serve as a basis for constructing your 10-20 year financial plan. Invest a few minutes (or a few hours) in yourself to compile the data of your personal situation that will likely save you a few years or decades. That’s a huge return on investment of time.
When you have your starting point and goals, share the data with your accountant, licensed financial adviser, coach and/or family.
1. Routine Household Expenses Review your bank statements and credit card statements and add up your ROUTINE recurring monthly expenses. This includes items such as mortgage/rent payments, food, gasoline, car payments, student loan payments, retirement contributions, utilities, insurance, hairdresser, medicine, gym membership and any other monthly or quarterly recurring expenses. It is best to analyze a full year of expenses if possible, though 3-6 months is a good start. 2. Special Household Expenses Review your bank statements, credit card statements and planned future SPECIAL expenses such as emergency fund, kids’ college, weddings, non-covered medical expenses, luxuries, vacations, down payments for your next house or car, cushion for a few months of job loss, funeral costs and any other special expense you can semi-reasonably anticipate for the future. Assign a number and a date for each of the predictable special expenses when possible. Some special expenses may be 15 years away, some may not be predictable on a timeline. But the mere action of putting these special expenses in writing will make you face the realities for which you can plan, instead of relying on hope and prayer shortly before the time comes to produce the money. 3. Routine Household Income
Add up all your routine after-tax household income including active income from jobs (salary), passive income from rentals, child support, social