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Step 1 - Setting Goals
Step 2 - Collecting Facts and
Figures
Step 3 - Assessment of Financial Health
Step 4 - Realistic Goals
Step 5 - Action Plan
Step 6 - Review and Assessment
Assessment of
financial health
This step allows you to analyze your present financial situation as
determined in the previous step and enables you to start thinking about
solutions. The direction your money management will take depends to a
large degree on both steps 1 and 2. Whether you have a positive or negative
net worth, and whether your cash flow indicates a gain or loss at the end
of the month, has profound implications on how you will begin to manage
your money.
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What you also must consider at this time is whether the goals set out in
step 1 are realistic when considered in light of your current cash flow
and financial position. If, for example, you have a short term goal of
saving $20,000 for a down payment on a house, yet you are carrying a
$20,000 debt load on credit cards, your ability to save for that house
will depend on the speed at which you can first pay off what is a high
interest debt. As well, a decision about how quickly you want to pay off
that debt must be made. If retirement planning is a big priority, perhaps
you want to set aside $25.00 each month for retirement investing. All of
these variables and many more must be considered in assessing your
financial health.
The primary goal of this step is to help you set realistic goals and
timeframes. Realistic is the most important concept. Analyze your cash
flow statement carefully. Did you forget to include your $20.00 monthly
magazine purchases? Did you neglect to include the cost of cigarettes,
because you plan to quit soon? Have you added up your monthly
entertainment costs and felt shock at how much you're spending on fast
food? Are there other areas where you can cut costs to pay down debt
faster, or start investing sooner?
Take time with this step. Be completely honest with yourself. Don't cut
out costs that require you to change your entire way of life until you
actually make those changes. Always remember that your cash flow statement is a
picture of your current financial health. Your cash flow statement will
change as your lifestyle changes. Once you've made your assessment
and moved on to the next steps, you may be on the road to changing the
look of your cash flow statement in significant ways.
Jump to Step 4 - Realistic
Goals
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