It’s a new year and we hope that you have reviewed your 2017 Financial Plan and updated to be your 2018 plan. If don’t have a financial plan in place for 2018, now is the time to get on track.
Just so you know, creating a plan is definitely Scriptural! “Which of you wishing to construct a tower does not first sit down and calculate the cost to see if there is enough for its completion?” Luke 14:28. Planning is a good way to be sure you are following God’s principles in managing your finances. Having a plan and managing your wealth and possessions is all about being good Stewards!
If this is the first time that you are doing a financial plan, you may have many questions about how to create the plan and what to include. The first place to start is to figure out where you are and where you want to go. Without those two pieces of information having a plan is meaningless.
Have you ever used a GPS to find your directions to a certain location? The starting point is your current location and your endpoint is where you want to go. Creating your financial plan should be done in just the same way.
If you don’t know where you are, how do you know your starting point? And without having a defined endpoint, you can go anywhere, even in circles, and you will have accomplished your goal.
On the CompassCatholic website, there is a Money Map which shows you the steps you need to take to reach true financial freedom. It covers what you have to do in the short term, mid-term and long-term to become financially free.
Start by reviewing the Money Map and check off the items you have completed, then focus on finishing the first steps that are incomplete.
Once you know what you have to complete, review where your money went in 2017. If you’re using a budgeting app or electronic spreadsheet to track your spending, this should be easy. Review the budget amount and actual amount spent in each category to see how you did for the year.
Did you spend more money than you budgeted in any categories? What about your categories that were underspent? Analyzing each category from an annual perspective will give you great insight into any trouble areas in your spending and a year of spending is the only valid basis for establishing your budget for the new year.
Once you have thoroughly reviewed last year’s budget and financial plan you are ready to begin setting your plan for the new year.
If you don’t have any data from the previous year, now is the time to start. Begin by tracking every penny that you spend–every penny–cash, credit cards, debit cards, and bank drafts so you’ll know where your money is going. And you also need to track every penny that is coming in–your salary, bonus, gifts, income tax refund, social security, childcare payments, part-time work, inheritance, deferred compensation, worker’s compensation, etc.
As you collect the data, put your expenses into categories: housing; transportation; groceries; medical; clothing; medical, etc. You now have the first stages of a budget for this year! Matching the income to the outgo allows you to see the difference between the two and discover if you are spending money wisely or if there are areas that need to change.
Getting a real look at the income and outgo helps you develop answers to all the financial questions you should be asking yourself:
- How much liquid money do you need each pay period for daily use?
- Where are you overspending?
- Are you spending on what is most important to you?
- What are your short-term savings goals (1-5 years)
- What are your mid to long-term savings goals (5+ years-retirement)
- What life goals do you have (education, starting a business, retirement, moving to a different location).
- How much money will you need when you retire and are you on track to save it?
- Do you anticipate that your current monthly expenses will increase or decrease this year?
You may not know each answer exactly, but write something down so that you can go back and refine it as the year progresses. Your answers today may be different than the answers you’ll have in 6 months! But at least now you have a starting point.
The most basic way to monitor your current financial health is to calculate your net worth. To do that, list what you own (house, car, furniture, electronics, clothing, boat, etc.) then define the current value of that item if you had to sell it today and add the current values together to get a total of your assets.
Next list your debts. What do you own on your credit cards, mortgage, second mortgage, car loans, student loans, money your parents loaned to you, etc.? Add the total of all your debts and subtract debts from assets to determine your net worth. You want your net worth to be positive—not negative!
This isn’t something that you want to do every month, but checking it every six months would be a good thing. Hopefully, you will see your assets grow and your debts decrease, meaning that your Net Worth will be increasing!
For the first 10-15 years we were married we didn’t really have a financial plan, we were just flying by the seat of our financial pants. Once we learned God’s way of handling money everything changed. We understood that we are called to be good stewards of God’s blessings and it was up to us to manage what God had given to us in a way that honored him.
We received many blessings from having a financial plan based on God’s word. We have already reviewed our 2017 plan and updated it for 2018. Our current 2018 plan is still based on the original plan we defined 25 years ago which has been updated each year to reflect life changes.
One key to a successful financial plan is a way to reduce or completely eliminate your debt. The average American has $10,000 – $15,000 of credit card debt; over $30,000 in automobile debt and over $130,000 in mortgage debt. All those debt payments add up to a lot of interest paid to the lenders. The faster you can reduce and eliminate your debt, the better your financial future will look!
If you are married, both spouses need to be involved in developing the yearly financial plan. Both of you will benefit from good planning and suffer the consequences of a bad or nonexistent plan. Money can be one of the leading causes of divorce so don’t let that happen to you.
We have provided you with some ideas that will assist you in developing a sound financial plan so you can obtain True Financial Freedom in the years to come. Having a plan is definitely Scriptural, and if you create your plan keeping the Scriptures as the basis for each step you take, you will ultimately achieve success.
The Lord tells us in Psalm 32:8, “I will teach you the way you should go; I will instruct you and advise you.”
Call us at 844-447-6263 or use the contact form on the Compass Catholic website for more information.