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:

Run through this checklist – here are 11 things you need to think about as 2011 gets started.  Some of these things you need to do, some of these things are ok for 2012…

1. Build an Emergency Fund
2. Pay off any debts that aren’t increasing your wealth – Credit cards, auto loans, and student loans aren’t increasing your wealth.
3. Make sure you have the right insurances in place – homeowner’s, life, sickness, injury, or lawsuit
4. Re-balance all your assets – make sure your money is where you want it to be, not just in house equity and retirement plans
5. Review your mortgage - it’s about more than just the interest rate
6. Buy an Investment Property or Help Someone buy their first home
7. Increase your 401k or IRA savings
8. Save for your kids College Education
9. Buy the home you really want
10. Buy your retirement home now, and then rent it until you need
11. Download this free ebook to see how to pull all this advice together or contact me for a free consultation.

With the last minute tax legislation that passed in December of 2010, the IRS won’t be ready to accept some tax returns until Mid-February.  For some home buyers in Charlotte, this could mess up their plans to buy a house in the Spring of 2011.

According to a recent article in the Wall Street Journal, taxpayers who itemize their deductions will have to wait until the IRS is ready to accept their tax returns – if not, the IRS will reject the return and you would have to re-file when they are ready for you.

If you are thinking of buying a house in Charlotte in 2011, this could affect you – many lenders will need to see your 2010 tax returns to qualify you for a home loan, and a delay in filing the return could delay your home closing.

With recent Mortgage Guideline changes, not only do you have to file your taxes, but the lender will need to get a copy of your tax return transcripts from the IRS – a process that can take up to 10 weeks after you file your taxes.

If you are looking to buy a house in the first half of 2011, file your taxes as soon as you can – even if you have to pay taxes, so that your home closing doesn’t get delayed.

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!