“He who loses money, loses much; He who loses a friend, loses much more; He who loses faith, loses all” –Eleanor Roosevelt
This post is long overdue for me in my opinion. How can I possibly work towards FIRE when all the details are scattered throughout my very busy brain? I never really knew much about Financial Planning until I met Mr Fire. The limit of my financial knowledge was setting a budget and sticking to it. I won a bank account when I was five years old during one of my many lengthy stays in hospital. I was sent out in the post a mini ring binder suitable for a 10 year old and I made my mother read it to me every night. From there I created a budget and then I stuck to it by any means necessary, if I said I was spending x amount on fun then I missed everything after I had reached my budget. As I grew older I was the same but in a more extreme proportion. If I said I was spending £100 on food, and I’d reached that limit, it didn’t matter how much time was left in the month – I went WITHOUT.
Of course as Mr Fire always tells me “its not sustainable and isn’t a true financial picture” Moving on to the Financial Planning guide:
- Look at your current situation
Whether you have a budget or not, this is the best place to start. Make a simple list (or you know, get fancy if that’s what you need) of all your assets and liabilities
If you want to get all nerdy you can also work out your net worth! but please remember your net worth is not the indication of your worth as a person (covering myself when I’m in the red)
Net worth = Assets – Liabilities
2. Have a spring clean
Ha! tricked you into doing the housework! nope not really, this step is about as boring as it gets but cant be skipped. Gather together all your financial paperwork, receipts, bank statements, cheque’s, bills…. the LOT! Then sort it out.
This is the time to turn off paper statements, refresh old passwords. You could even get a free credit check report….
3. Make a budget
This is easy to complete now as you’ve already completed the leg work on this one in step 1 and 2. The budget is just about the here and now in this step, save future goals for the next part.
There are a whole heap of guides out there on how to make a budget so I wont preach how to do it here (a future post maybe?) Its basically noting your income, then looking at your essential spending and disposable income for the past three months. Once you have all those figures you can then create a budget that you can stick to.
4. The fun bit
This is where the actual planning starts. Start by making a list of what financial goals you have for the future:
- Children to University
- Buy a car
Make a list of combined short, medium and long term goals. I’ve been reading alot about the benefit of making your goals SMART:
So you would turn buy a new car into – “Save £1500 for a new car by putting £125 away a month for 12 months”
5. Putting it all together
List all your goals in order of priority/proximity. Remember that you can work simultaneously on goals and also create progression ie, save for driving test, then once passed goal changed to save for car….
6. Take another look at the budget
The not so fun part is making sure your budget and goal are lined up. No use saying you want £250,000 for early retirement if you then quit your job and have no way to fund it (oh wait that’s what I did…..)
Once you have worked out the kinks, you can then decide how you work towards your goals whether you have money come automatically out of your account or you do it manually.
All that’s left is to schedule yourself in for regular reviews! Budget’s and life goals aren’t fixed so keep checking in.
I’d love to hear your financial goals? I’m going to work on mine for sharing next month.