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A well-defined financial goal is: The key to successful money management is developing and following a personal financial plan. Research has shown that people with a specific - what you want to achieve. financial plan tend to save more money, feel measurable -- how much money you will better about their progress, and make more need. appropriate decisions no matter what their tied to a time frame -- when you want to income. Moreover, a written financial plan is far achieve the goal. more effective than a mental one. Seeing your reasonable it can be achieved with the plan in writing helps to remind you about what time and money available. actions are necessary to reach your goals and The following is an it helps you to check example of a wellThe key to successful your progress more defined financial goal: I money management is easily than relying on want to buy a house developing and following a memory alone. that costs around $150,000 in 2007. personal financial plan. A successful financial This goal is specific, plan can be developed measurable, and tied to in six steps: a time frame. It is 1. Set goals reasonable when you are willing and able to 2. Prepare a net worth statement include the goal in your everyday spending 3. Gather past income and expense records priorities. 4. Complete the Spending and Saving Planner 5. Keep records of spending and saving Prioritize goals in terms of their importance to 6. Evaluate you and your family. Goals will differ in the length of time needed to achieve them. It may not be possible to start working on all goals in Step 1: Set Goals the same year. However, long-term goals need a place in the financial plan over time. Both First, take time to set goals and decide as a short- and long-term financial goals will require family what you hope to accomplish financially. regular savings. Knowing what is important to you and your family is a critical first step in a successful The first short-term goal for every family should personal financial plan. Use the Setting Goals be an emergency cash reserve. In addition to worksheet to decide which financial goals are the regular savings that are needed to achieve most important to the family and how much will your specific goals, most families also need a be needed each month to accomplish these rainy day fund for the unexpected financial goals. emergencies that happen without warning. The emergency cash reserve should equal 3-6 months of your monthly expenses, if your job is secure. If your job is not secure, a 12-month
2004 Center for Personal Financial Education 1
cash reserve may be a safer cushion. No matter how much you choose to set aside for emergencies, your cash reserve should be easily available, safe, and only used for emergencies. One way to build your cash reserve is to have a regular amount of savings automatically deducted from your paycheck and deposited into a savings account.
Will you be able to meet your future goals if you The next step in your financial plan is to look at continue to spend as you have in the past? Use your present situation by preparing the Net Worth the Spending and Statement (also referred Saving Planner to to as a Balance Sheet). Your everyday spending guide your everyday A net worth statement spending decisions. adds up all your assets, decisions have a greater the things you own, and impact on your long-term If you are looking for subtracts from that your ways to control financial well-being than of liabilities, all the debts everyday spending, you owe. Yearly net all of your investment begin with your credit worth statements allow cards. Only use credit decisions combined. you to track your cards when you have financial progress over enough money to pay time. the bill in full at the end of the month. By reducing your credit card balances, youll Step 3: Gather past income immediately start saving 12%, 18%, 20% or whatever your interest rate may be. Every and expense records dollar you spend for interest on credit payments has two effects: To determine how your money has been spent in the past, use the Past Income and Expenses worksheet. To get an accurate picture of your past spending, sort through your checkbook registers, receipts, credit card bills, online statements, and whatever other financial records you may have.