With the start of a New Year, it’s a great time to look at what you want to accomplish financially over the next twelve months.  Who has time for that?  You do!

Sometime over the next few months, you are going to have to collect all that paperwork for preparing your taxes.  This is a perfect time to add an extra hour to the process and consider this list – do it for yourself and your financial safety & Success:

1. Build an Emergency Fund – make sure you have some cash that can tide you over if something goes wrong.
2. Pay off any debts that aren’t increasing your wealth – Credit cards and Car Loans keep you from building wealth
3. Make sure you have the right insurances in place – protect the important things: Your Health, Income and Lifestyle can all be protected.
4. Re-balance all your assets – The location of your money
5. Review your mortgage – don’t spend too much on interest and make sure you are paying it off on your timeframe.
6. Buy an Investment Property – Great alternative to mutual funds for building wealth over time and diversifying your assets.  Maybe buying your retirement home this year is the right thing to do. (See #11)
7. Or, Help Someone buy their first home – gift a down payment to a family member to help them get started while homes are more affordable than ever!
8. Increase your 401k or IRA savings – make sure you are putting away the right amount.
9. Save for your kids College Education – it’ll be here before you know it.
10. Buy the home you really want – home prices and low interest rates make this the best time to move in years.
11. Buy your retirement home now, and then rent it until you need it.  Let someone else pay down the mortgage and you get the tax deductions until you retire.
12. Download this free ebook to see how to pull all this advice together or contact me for a free consultation.

Whatever you decide – here’s the number one tip:  Write it down!  Writing down your goals somehow helps to make them happen.  Here is more on how SMART goals work.

I came up with the idea for “Start with the House” a few years ago after looking at financial profiles of several hundred home buyers and home owners.  I realized that people have a much greater chance of getting ahead financially when they ‘Start with the House”.

What does it mean to Start with the House?  It means that financial success becomes a lot easier when decisions about home ownership and home financing are made first, then other choices close to home are made next, and lastly financial choices unrelated to where you live are made.

Financial Priorities:

The “Start with the House” idea has financial priorities that give you a specific order for getting things done financially.  The big picture is to protect what you have and want to have, then save some money, and lastly, to grow your wealth.  No sense trying to grow your wealth if you can’t protect what you already have from loss.  For example, what use is a $15,000 stock portfolio with no home owner’s insurance if a tornado destroys your house?  $15,000 won’t be enough to rebuild a lost house.

Turn your home into your castle:

If you were going to turn an ordinary house into a castle, you would have to do some renovating.  First, you would dig a moat around the house. Then, you would make sure there were no tunnels under the foundation of the house that could allow an enemy to sneak in unnoticed.  Third, you would build walls and towers that were strong enough to withstand rocks shot from catapults.  Fourth, you would hire some castle guards with fancy uniforms, but no too many – just a few.

Emergency Cash

Think about it – what could happen to you – good or bad – that wouldn’t be better if you had some cash readily available?  Here are a few ideas to get you thinking – water heater explodes and needs replacement, a tree falls on your house, you get a chance to buy a beautiful Harley Davidson at half of the value, but you need to buy it today.   Good or bad, issues that turn up in our lives are easier to deal with if you have some cash readily available.

Cash is like the Moat around your castle – you can use it to slow down an attack – like paying cash for a new hot water heater rather than using credit cards, or, you can use it when you aren’t being attacked – simply get some water to wash your car or take a drink.

Credit Cards

Credit Card Debt and credit card payments are like tunnels that drain the water from the moat around your house.  It is really difficult to build real wealth while transferring most of your excess money each month to the credit card companies to pay for yesterday’s memories.

As soon as an emergency fund is established, paying off and never carrying credit card debt is the next highest priority.

Real Protection

People know they need home owner’s insurance when they have a house, but their are 3 important things you need to protect:

1. Your Current income
2. Against Lawsuits
3. Your future Income

If you own a home, you need to protect the physical structure with Home owner’s insurance, but, you also need to protect your current and future income so that the mortgage payment is never in doubt, and protect your home against a frivolous lawsuit.

Save for Long Term Goals:

Someday, everyone wants to retire, or at least have more freedom to choose how they want to live.  This takes money, and bad home owning decisions make it harder to save.  The key thing to saving money is to start now!  Paying off a mortgage loan first, then starting to save money is never as powerful as saving money right now while keeping your mortgage current.

Start the habit of saving money now, and your home loan will pay itself off over time.

Pay off your house when you feel like it!

When you have an Emergency Fund, no short term debt, Proper Protection, and savings for other goals, you will pay off your house on time, when you feel like it.

By Starting with the house, and having sound financial priorities like I outlined above, you will succeed financially and be able to take care of the important things in your life!  Let me know if these priorities are valid for you, and share your successes with me, too.

Typical Asset Allocation Picture

Many Financial Planners will talk about “Asset Allocation Strategies” as a way to safely grow your net worth.  Asset Allocation strategies sound pretty complicated to me, so I like to look at “Asset Location” first.

What is Asset Location?

Asset Location is having a plan for where you are going to locate your Assets – more simply, where are you going to store your money.  In terms of Start with the House, Asset Location is one of the final steps.  After you have:

1. Established an Emergency Fund
2. Paid of Credit Card Debt
3. gotten the right insurance protection

You need to start thinking about where you are going to put your money.  For too many people, they don’t think about this – they just try to pay off their mortgage as soon as they can.  I have no problem with paying off your mortgage – I do have a problem if you are paying off your mortgage and don’t know why, or if you are paying off your mortgage early and have more important things to do with your money.

Basic Asset Location

How to look at your Asset Location?

You can look at your Asset Location pretty easily.  I divide Asset Location into four basic areas:

1. Equity in your House
2. Cash
3. Retirement Savings
4. Non-Retirement Savings

So, to do this yourself, add up how much you have in House Equity, Retirement Savings, Cash and non-retirement investments.

To evaluate your Asset Location, you need to consider if the money in each category is

• Liquid
• Safe from loss
• Earning a Rate of Return

Every Asset Class (House Equity, Retirement and Non-Retirement Savings) does better or worse when looked at this way.  For example, Retirement savings should earn a rate of return, but they aren’t normally safe from loss, and they are liquid, but you usually have to pay an income tax  penalty.  Retirement savings end up scoring a 1.5 out of three points.

House Equity, however, fails all three tests – it is not liquid, is not safe from loss, and earns no rate of return!  (Your house may appreciate in value, but the equity in the house doesn’t cause that appreciation, so your equity just sits there…earning nothing).

What to do about your Asset Location

Create a simple chart like I show above for your situation – you can sketch this on a piece of scratch paper using estimates in just a few minutes, then look at what the chart is telling you.

• Do you have too much of one asset class? Then stop putting money there, or plan to shift some money elsewhere
• Is the pie too small?  Focus on building the sections of the pie one at a time – Cash, then non-retirement savings, then Retirement savings, finally House Equity.  Two thoughts here – (1) if you get a match on retirement contributions, go ahead and contribute to that plan to be sure to get the free money.  (2) If you own a house, you will build equity anyway as you send in the payment each month, so don’t send in extra unless you have nothing better to do with your money.
• Do you need to move some money around? Maybe you need to refinance, increase your retirement savings, or focus on building an emergency fund of liquid cash.

If you want to talk about your specific Asset Location, just give me a call at 704-541-1171.

Once your Asset Location is set up right, you will find it is easier to safely keep and grow your wealth so that you can then focus on Asset Allocation Strategies with a financial adviser.

the most important factor about saving money is to start today.  Saving a little today will almost always give you more money than saving more money, but starting later.

Consider this example, and ask yourself, who will end up with the most money at retirement?

“Sarah the Saver” is a hard worker who understands the value of time and the importance of saving.  She starts saving money when she is 16. Each year, she saves $2,000 – roughly 250 hours of work at minimum wage. when she is 16, it is about half of her summer earnings – six weeks of full-time work in the summer. It’s not an unrealistic amount of money for an enterprising 16 year old to earn, while still having plenty of money for current spending.

Saving becomes a habit, and Sarah the Saver puts away $2,000t every year. Even after she begins her career in her mid-20s, she still only saves $2,000 per year.  She invests these savings in a conservative way, using a ROTH IRA account so the investments won’t be taxed. She doesn’t make any wild bets, just puts 40% of her savings into short-term, highly rated corporate bonds. She puts 40% into high-quality “dividend growing” stocks, and puts 10% into gold. Simple.

Her portfolio only produces modest returns. Over time, she earns about 8% a year – mostly by reinvesting dividends and interest payments. Sarah is not worried about getting “rich”, she’s just saving money.  And, it’s pretty easy because she never saves more than $2,000 a year, even as her income increases. She has plenty of money to spend on things she needs and wants, in fact, her friends don’t even know she has this weird habit of saving money each year.  But, she always remembers to save first.

By the time Sarah is 40 years old, she’s contributed $48,000 in savings to her portfolio. At that point, she gets bored with saving and decides to quit. So at age 40, Sarah the Saver becomes “Sarah the Used to be a Saver” – she stops saving money, and now spends all the money she makes for the rest of her life.

“Sam the Spender” doesn’t learn to save as a child and doesn’t even get a job until after college. By that time, he’s so busy buying things – cars, vacations, dinners at nice restaurants, clothes, houses, etc., he never can “afford” to save a dime.

(Fortunately for Sarah the Saver (and her Dad), Sam and Sarah never meet, never fall in love, and never get married!)

Sam wakes up at age 40 and realizes he doesn’t have anything in the way of a retirement fund. So, he begins to save, and he does a great job. He starts putting away $10,000 per year, every year. He knows he’s got to play “catch-up”.  Just like Sarah did, he invests conservatively and earns 8% a year. He reinvests everything, like Sarah. By the time he turns 65 years old, Sam has contributed $250,000 towards his retirement.

Guess who has a bigger portfolio at age 65? Is it Sarah who never contributed more than $2,000 per year and whose savings totaled $48,000 in her lifetime… or is it Sam, who enjoyed his early years, and then saved more than five times as much money?

At age 65, Sarah the Saver’s portfolio is worth a bit more than $1 million. Sam only has 800,000, even though he put over $200,000 more into his account than Sarah did.

How does retirement work out?

At age 65 Sam retires, he stops saving, and starts withdrawing $100,000 a year to live on in retirement.  By starting with just over $800,000, and still earning 8%, Sam makes his money last 11 years – until he is 76 – and now broke.

Sarah waits until age 70 to start spending her money.  So, during the 5 years when Sam is spending again, Sarah’s money is still growing.  At age 76, when Sam is out of money, Sarah has over $1.5 Million and at age 95, she has $2.2 Million and her money is growing faster than she can spend it!

Here are the key lessons from this story of Sarah and Sam:

• Starting early is more important than how much you save
• Compound Interest only works over long time frames
• Watch out who you marry!

Oh yeah, what if Sam misses a year at age 43 since he is not really used to saving?  he doesn’t just lose the $10,000 investment, he loses all the earnings of that $10,000 and the earnings those earnings earn?  he runs out of money FIVE YEARS sooner – just by skipping one year!

Start the habit of saving today, and teach your kids to do the same – who knows, maybe your child will grow up to be a US Senator and save our country by knowing how to save!

Too many people think if they pay off their mortgage, they can never lose their house. Unfortunately, they often find out too late that is just isn’t true.

Watch this short video to learn the safest way to own your house:

Below are Seven different spreadsheets that you can download to help you create a budget.  They are in no particular order so you may want to read through and see which format matches your personality best.

Personal budgeting spreadsheet

This is a pretty complete budget and expense tracking spreadsheet. You would have to enter each purchase and details in order to get full and accurate tracking of daily expenses.

Household budget template

Use this spreadsheet to track your spending. It adds up everything by category, so that you can build a budget from the results – use this for a month or so to really know where you money is going. 

Personal Budget monthly spreadsheet

This one is good if you are trying to add up income and expenses and find the difference between the two.

Family Budget planner

This one allows you to look at the whole year’s expenses and income with each month being a column in the sheet. 

This free family budget planner spreadsheet helps you create a budget for an entire year. Doing this can help you make predictions about where you may stand financially in the future, especially if you are moving, switching jobs, buying a home, or making other major life changes.

GLBL Budget Spreadsheet

It is different than most because it works by pay period, rather than by month.

Debt Reduction spreadsheet

This is a really cool spreadsheet that helps you decide the best method for paying down your debts. It allows you to create a debt reduction schedule based on the debt-snowball method. The first page is a basic calculator for you to enter your information, choose your total monthly payment, and see a summary of the results based your debt reduction strategy. The second page is a printable payment schedule to help you keep track of your progress.

Personal Budget Worksheet

A famous Microsoft budgeting template. It is very simple, but has proven to be helpful with the 2,000,000+ downloads. It simply allows you to add up your expenses and your income showing the difference.

My best advice:  Build your own Spreadsheet!  

If you build your own, you will have all your personal categories included, and you will understand the math that will make you a better forecaster. Use these basic sections:

• Top section:  Forecast the income you have coming in from working, commissions, bonuses, etc.
• Second:  Forecast what you will Save / Invest / Give / pay down debt.
• Third:  Forecast what you have to spend money on:  Mortgage, Auto Loan, Taxes, Etc
• Third: Forecast things you will spend money on:  Food, Gasoline, Vacations, Etc
• Fourth: Find out what is left and decide where you want to put that money:  Save, debt reduction, vacation, etc.
• Fifth: If there is nothing left, it’s pretty simple: You need to figure out how to earn more, or where you can spend less.

Once you build your own - try Mint - this software is free, works on your PC, MAC, Droid or iPhone and tracks all your spending for you.  I’ve used Mint for about 16 months now and find it very useful.

Comment to let me know which spreadsheet you like best, or send me what you use so I can add it to this list!

Setting Goals is a key to succeeding in any area – whether you are talking finances, fitness, or career. You can research all you want, but it is very rare to find a successful person anywhere who isn’t a goal setter.

Don’t confuse goals with hopes.  “Hopes” are vague, without deadlines, and often unrealistic.  Goals are just the opposite.

Here are 5 keys to setting great goals that you can achieve:

S = Specific

Goals should always be as specific as possible. For example, assume you set a goal that says, “I want to make (or save) as much money as possible this year.” This is a terrible goal because it’s vague; that is, there’s no definition of what “as much money as possible” is. 

Psychologically, vague goals tend to make you procrastinate or get lazy because there’s no definite number to hang on to. 

So, a better way to write a specific goal is this: “By Dec. 31 of this year, I will have made $100,000.”Or, “I will have cut spending by $10,000 by Dec. 31.” Now, your unconscious has a concrete number to grab on to! 

(Note: your sub-conscience loves concrete items. If you want to make a goal real in your mind, describe it as much as possible in terms of the five senses; that is, touch, smell, taste, hearing and sight).

M = Measurable

Every goal should have a standard by which you measure it. In the example above, you can measure your progress toward that $100,000 income (or the $10,000 savings) very easily on a monthly basis.  You need to know that at the end of the time you set for yourself if the goal was achieved or not. 

“Get in Shape” is not a goal – it’s a hope.  “Lose 10 pounds by June 1st” is measurable.

A = Attainable

Be sure your goal can be reached. For example, if you haven’t gone jogging in 10 years, don’t set a goal of competing in the Hawaii Iron-man Triathlon this year!  

A more attainable goal might be to run a half marathon that is scheduled 6 months from now. 

The same goes for spending: set an attainable goal. You may have, say, $12,000 in credit card debt. It may not be attainable to eliminate it in one year; however, you may be able to reduce it by $6,000 by next December 31. 

R = Realistic

A goal must not only be attainable; it must be realistic as well. What’s the difference? Well, let’s assume that you’re new to the field as a real estate agent. 

Setting a goal of, say, $500,000 income for your first year is, in most cases, wildly unrealistic. You have to learn your trade…find leads…make contacts…etc. 

In this case, you need to set a more realistic goal, one geared to your abilities, experience, and market. 

T = Timely

By timely, I mean that you should set a deadline for every goal! This is vital. Psychologically, we all respond to deadlines. They impart a sense of urgency and make us want to achieve those goals within that specific time period. 

Did you notice in the examples above that I set a definite deadline – “by Dec. 31?” You can do this for goals large and small; for example:  

•  
  • I will save $1,000 by March 31st.
  • I will contact my mortgage planner and my insurance agent to review my mortgage and insurance coverage by this Friday.
  • I will schedule my annual physical by January 31st etc. 

One final important note: Always put your S.M.A.R.T. goals in writing! This is another concrete action that will ensure your goals get accomplished. If you simply carry those ideas around in your head, believe me you’ll forget them!

Here are Six Simple steps you can take to easily create a spending plan that you can live with, and even Succeed with:

Action Step 1 – Set a Goal

Believe me, goal-setting is one of the most important skills you can possibly learn, no matter what field you’re in. 

If you talk to any entrepreneur about how they were able to achieve their success, I guarantee you that one of the first things they’ll tell you is, “I set goals, and then I commit to them.” 

Okay, it’s good to talk about goals, but how exactly do you set them? I recommend that you follow the time-proven S.M.A.R.T. format. Here’s what this acronym stands for:

• Specific
• Measurable
• Attainable
• Realistic
• Timeframe

Be sure to read this for more details on SMART Goals. If they aren’t SMART goals, they are just hopes.

Action Step 2 – See Where Your Money Is Going

The following task is one you must absolutely, positively accomplish – sit down right now (and every month thereafter) and go line by line over your credit cards to determine where your money is going. I guarantee you that the results will be shocking. 

Those “discretionary” items add up. By discretionary, I mean items you don’t need like those weekly $4 cups of coffee, $10 lunches, or $20 dinners. 

And once you’ve identified those items, then you must… 

CUT THE UNNECESSARY SPENDING! 

Remember, every dollar you save on discretionary items can go back to work for you – to pay off debts faster, increase your savings, or grow your business and income. 

Action Step 3 – Find Ways to Save.

Too much of what we spend is just old habit, or automatic payments that occur over time.  For example, I subscribed to a magazine years ago that somehow auto-renews and keeps on coming, even though I haven’t read it for years.  After you know where you are spending your money – look for things to eliminate, and for things that you can do better.  Here are some quick things to find:

• Mortgage rate too high?
• Home owners and Auto Insurance
• Magazine Subscriptions
• Membership dues to groups you no longer participate in
• Telephone plan with un-necessary features

Most people can easily create $300-$500 per month in savings just by finding and eliminating the leakage in their spending.

Action Step 4 – Live Frugally (for a Set Period of Time)

Here’s a simple fact: it’s much easier to save $1,000 by cutting expenses than it is to make $1,000 in income.

A key to budgeting is that you have to be willing to make sacrifices for a definite short period of time (not forever). It’s actually an investment in your financial future! 

As Dave Ramsey, author of The Total Money Makeover, says,

“Live like nobody else today, so you can live like nobody else tomorrow.” 

Make it a game or a contest to spend as little as possible for a period of time.  Then, reward yourself with some of what you saved to make the game enjoyable.  Imagine how much more enjoyable a weekend getaway would be if it was paid for, not with credit cards, but from saving some money by living frugally for a period of time.

In other words, practice financial discipline and accountability today, and you have the potential to achieve incredible financial success in the future.

Action Step 5 – Pay off those Credit Cards and… 

CUT UP THE ONES YOU DON’T NEED! 

To avoid the temptation to use your credit cards, follow this guideline: “If I have to finance it, I can’t afford it.” Or, to put it another way, “If I can’t pay cash for it now, I don’t need it.” 

In my opinion, the only things you should be financing in your life are your vehicle and your home. (And we can talk about the vehicles…)

Having seen well over 1,000 credit reports, the highest scores are always the people that have no more than 1 mortgage, 1 Credit Card, and 1 car loan.  You have to use credit to have great credit, but too much hurts your score.

Never open or use department store credit cards.  Saving 10% on something you don’t really need (See action step #3) stills means you are spending 90% on something you don’t really need.  Avoid the temptation when the salesperson offers you 10% off for a new card – tell yourself that you wouldn’t be offered a discount on this if you really needed it.

 Action Step 6 – Plan Your Spending Carefully

Right now, you’re saying, “Okay, I get the point! I need to budget and budget well on a consistent basis. But, how exactly do I allot my dollars so I cut spending and increase my business at the same time?” 

An excellent question! Although every individual situation is different, here are some guidelines that, over time, will work for everyone:

Guideline 1: Live off 70% of your “take home earnings.”

That’s right, spend 70% on the “have to’s” of your life; for example, food, mortgage payments, utilities, etc.

Guideline 2: Give 10% back to God.

The simple act will pay you back many times over, I guarantee it. If you’re not particularly religious, then give to your community…to a charity…an educational institution, etc. Your church or other institutions have given you plenty; return the favor. 

This is a key to success as it establishes ownership of money entrusted to you – if you see yourself as a trusted steward of God’s money, you will manage it better.

Guideline 3: Use 10% to pay off debt (over and beyond your minimum balance) or for short term savings

If you can’t pay off your debt right away, pay it off on a consistent basis. Never pay just the minimum balance, particularly on your credit cards! Pay a minimum of 10% beyond that amount (even more if you can). Get that monkey off your back!

Once you have eliminated short term debt (everything but your mortgage and car loan), save that money, so when you have an unexpected expense, you never have to reach for the credit cards again.

Guideline 4: Place 10% in investments (stocks, mutual funds, etc.).

Definitely invest for the future! You want your money out there making more money. So, invest wisely and, of course, spread the risk over different types of investments.

Here’s an example of how the application of these guidelines looks in concrete figures. Let’s assume you earn $8,000 a month in take home income. The budgeting breakdown would look like this: 

• $8,000 a month take-home
• $5,600 (Mortgage, Food, utilities, etc.)
• $800 to God
• $800 to debt / short term savings
• $800 investments

One final piece of advice: Nothing helps your budget out more than earning more money.  So, figure out what you can do to become better and more valuable at your present job.  Then, your boss, or your customers, if you are self-employed, will have to pay you more – or someone else will.

In Summary, you can succeed financially by having a plan to do so – let’s just call that plan a ‘Budget’.  Here are the steps:

1. Set a Goal
2. See Where Your Money Is Going
3. Find ways to save
4. Live Frugally (for a Set Period of Time).
5. Pay off those Credit Cards
6. Plan Your Spending Carefully

One, carry a pad of paper with you wherever you go and document every penny of your spending for 14 days. You’ll be amazed at how much money you’re spending on things you don’t need. 

Two, carry cash and use it instead of credit cards. You’ll definitely spend less because you’ll physically see dollars coming out of your wallet and purse. With credit cards, it is too easy to spend money that you don’t yet have and then end up with Credit Card balances that you can’t pay in full each month.

Three, every time you get a paycheck, go online and pay all your credit card balances to $0.  This way, your balances will always be low, and you will always keep them from getting away from you.  This will maximize your credit score as well.

Many people hate the word ‘Budget’.  It leaves them feeling restricted, bound up, and takes away creativity.  Nothing can be further from the truth.

A Budget is simply a plan on how you will use the money entrusted to you over the next month or year.  A plan allows you the freedom to operate within reasonable limits, and allows you to find creative ways to make the budget even stronger.

Budgeting is critical for financial success – so why do so many people ignore it?

In my opinion, there are three reasons:

Reason #1

Often; we ignore budgeting simply because we don’t have specific goals for our spending. We go merrily along thinking, “Well, I’ve made good money this year so hang the expenses. Who cares about them?”  Or, “Hey, I can make the minimum payment on the credit cards and then catch up next month”.

You can guess where this attitude leads – straight to out-of-control spending because you don’t have the “brake” of a budget to keep you on a secure financial road.

Reason #2

We simply don’t know how to budget! We were never taught how to do it by our education system (a criminal shame, in my opinion)! If I had my way, budgeting would be a mandatory subject in every school in the land!

I think we would be much better off knowing how to build and follow a spending plan rather than calculating some of the Geometry problems my high schoolers are assigned.

Reason #3

A budget simplifies your life, reduces stress, and helps you achieve your goals.

In our consumer-driven economic system, we’ve all been taught to spend and not save.  Every day in every way on the media (TV, radio, print, etc.), advertisers urge us to spend, spend, spend.  Needless to say, this is financial insanity.

So how do we restore the sanity for ourselves? You already know the answer, don’t you? By creating a plain old, boring, yet essential, budget.

But how do you budget effectively? Just take some common-sense action steps!

So, learn how to, and practice good budgeting to succeed financially.