Three Steps

It is that time of the year where we look back at the past and think about the coming year. Many of us have already set New Year’s resolutions with high expectations for making great changes in our relationships, health, or career.  As I was thinking about what message I could share with you, I got a friendly reminder from my wife that it was time for our annual personal financial planning and budget check up. Her reminder brought back memories of juggling expenses to make ends meet as our kids were growing up. We juggled our family’s expenses by relying on a simple, trusted process. That process included Taking Stock, Making a Plan, and we learned that our success was directly proportional to Keeping it Simple.

There are plenty of financial management systems out there and plenty of tools that people will try to sell you. I believe that with Rogue’s Internet Banking tools, a simple spreadsheet or even just pen and paper, you have all you will need to understand where your money is going today and where you want it to go tomorrow. With literally thousands of web results for a simple Google search like “a budget for the new year,” I realize I am not sharing anything new with this message. However, if this message resonates with just a few of you and encourages you to act, then I have accomplished what I set out to do!

Take Stock – This step is simple - all that you need to do is look at your past expenditures. While some might look at the entire year, you many only need to look at one to three months to find a clear understanding of your spending habits. Once you identify where and what you are spending your money on, some clear patterns become obvious. When I first started this process I was shocked at how much I was spending on credit card interest on an annual basis. In fact, most of the emergencies we experienced in a year could have easily been covered if we had not spent the money on credit card interest. Also, items like cable TV, cellular phone data plans, and your favorite coffee drink each morning can add up to large amounts when you consider the total expense for a year. Only you can decide what is the best use of your funds, but simply spending the time to “Take Stock” will give you the data necessary to make informed decisions when you “Make a Plan.”

Make a Plan – For many years my wife and I would sit down at the first of the year and review our spending from the previous year. Then, we would identify how we were going to spend our money in the coming year with a family budget. Finally, if it looked like there was any money left over in the budget after funding our emergency reserve account and meeting our savings objectives, we would agree upon what we would use any of the excess funds for. It might be braces for the kids, a family vacation, or a new piece of furniture. The most important part is that we were on the same page and impulse buys were much less of a risk because we had an agreement on what any excess funds would be spent on. This annual planning session resulted in a plan that we both owned and were accountable to each other for, and was one of the most powerful things we did each year. We haven't done our annual planning for a couple of years, and my wife reminded me that we need get back to the basics of building an annual financial plan.

Keep it Simple – Finally, all the work discussed above is critically important to your success. In many ways, the tools mentioned above are the building blocks to begin the journey to personal financial independence. The tough part is keeping to your plan. As mentioned previously, there are so many tools out there, but I see great intentions get lost in the details of the systems used. Don’t overcomplicate the process. Don’t break down your spending into dozens of categories…try to keep them to a dozen or less. While my wife and I have used a personal financial program to track our expenses for most of our married lives, you don’t need that level of detail. By identifying a few major spending categories and then tracking them from month to month you will be able to determine if you are on track or not. Simply knowing where you are at is great progress.  You can track your expenses as simply as pulling up your checking account history on our internet banking tools and selecting the dates for the month you are reviewing. Once you have the history simply click on “Description” and your transactions will be sorted alphabetically by payee. Add up the amounts by payee, then take the payee totals and transfer them to your spreadsheet or your paper system.  In just a few short minutes you can use this simple “no excuses” method to get a good picture of your finances and can determine if you are on track or not. There are many other ways to get the same information whether you download from our internet banking to your spreadsheet or set up an auto syncing link to your favorite personal finance program or app.

As I mentioned before, there are literally thousands of web references that will tell you how to get your finances under control. Please check them out and see if any will help you find financial independence. Just remember that it is not the tool that will determine your success… I believe success can be found with any system if you Take Stock, Make a Plan, and Keep it Simple!