The Financial Continuum

It is often said that life is like a marathon. However, perhaps it is better to consider life as a series of sprints with periods of recovery in between. This can apply in so many areas of our lives. Family, career and finances are all areas of our lives that have periods of all-out sprints and then times of almost coasting. When it comes to the financial race, it is important to evaluate you are and where you want to go, and then to create the map to get there.

On your mark …

In the early stages of financial development, it is about covering the basics. Dave Ramsey refers to it as the four walls: housing, food, transportation and clothing. The basic tool at this stage is a personal budget and identifying where every dollar goes. If the basic needs are not being covered, it is typically one of two things or both: Income needs to go up or spending needs to go down.

Without a budget to evaluate, what is going where is hard to say. With debit cards, the ease of online shopping and of course, credit cards, we don’t physically carry and feel money (cash) leaving our wallets anymore. Think about growing up and having an allowance. You always knew how much you had to spend and where it went!

So start with where you are. Identify how much is coming in after all deductions. Next, keep track of how much is spent on each category. Some simple ways to do this are to keep a daily journal, keep a folder of receipts and tally at the end of the month. Many banks now have an online “spending report” feature that will do most of the work for you from your checking account. With this information, you can determine your fixed expenses (required every month) and your discretionary spending (extras like the daily stop at Starbucks).

Now it is evaluation time. If the outflow exceeds the inflow, there is work to be done. Cut the non-essentials, go back to the days of being on an allowance and watch every dollar. If there is nowhere to cut, the focus has to be on raising income. Adding a second job, gaining a new skill and selling that stuff in storage that hasn’t been touched in years are places to start.

The goal is to get on solid ground and create margin. Margin is the extra that is left over at the end of each month so you can then go to the next stage.

Get set … go!

Now the fun begins. This stage of the financial race is where the direction is proactive rather than reactive. It is about focusing on financial security by establishing and achieving goals. The areas of focus should include savings, risk protection (insurance), retirement, college and debt elimination. Often, this is where we are most of the time in our financial development. Envision a bucket with a “full” line clearly marked for each category. Ideally you are adding to each bucket all the time. Each one gets a portion of the monthly budget.

Here is the main takeaway from this: You must live below your means. That is not a philosophy that is widely taught or embraced in our culture today. It is OK to live in your home a little longer, to be a little cramped for space and to drive your car for more than a couple of years. This allows the opportunity to add lines to the monthly budget for savings, accelerating debt repayment, college planning and retirement planning.

Again, start with where you are. Even if you can only allocate an extra $25 per month to savings and $25 per month to paying off that old credit card, progress is progress. When deciding where to prioritize with the buckets, it is important to utilize the many resources readily available today. There are many financial websites, books and classes. “Total Money Makeover,” by Dave Ramsey, is a great tool with actual budgets, forms and clearly outlined priorities.

There are also many classes you can attend such as Financial Peace University (FPU) at local churches if going it alone is not successful. It is also critically important to assemble your financial team. This includes a good financial planner, investment advisor, CPA, insurance agent and attorney.

Talking to coworkers, friends and family to seek a direct referral is a great way to assemble this team. Ask people you trust for input on professionals with whom they have personally had a successful experience. Remember: You are interviewing them to be on your team. Personality fit, professional experience and integrity are as important as the products they provide and the price they charge.

Have a plan and work the plan. So many joys in life come from this: peace of mind, financial security, stability for your children and opportunities to leave a legacy. Is it hard? Absolutely. Is it worth it? Without a doubt. Take charge and create the best life possible for you and your family!

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