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Setting a financial goal

2006-08-28T20:49:00.001-07:00

Personal Finance: Setting a financial goal

Do you have a plan for financial security? Have you ever considered setting financial goals for the future? Consider it right now if you desire financial security and higher levels of financial success.

Financial goals are life goals. Without financial goals you waste your life. Setting proper financial goals will ease your journey into the future. Financial goals are different from fantasy. If you dream of owning a super-luxurious villa in Hawaii, then it obviously a fantasy since it is not a goal many people can realistically achieve. Proper financial goals are realistic and achievable future life planning with specific time frames. Financial goals are simply plans to succeed financially.

Setting goals is the key to financial decision-making. Your financial goals are the basis for planning, implementing and measuring the progress of your spending, saving and investment activities. When you set yourself a financial goal, you proclaim that you are ready to start working on it and begin to develop an action plan. Setting financial goals helps you to focus on developing workable strategies. It makes you more creative and also helps you stay motivated.

It is important to set a realistic time frame for each goal. It is better to separate your goals into short-term, medium-term and long-term ones. Short-term goals are those you want to achieve within the next 12 months, such as reducing your credit card balance or buying new home appliances. Medium-term goals are goals you want to achieve within one to three years, for example, accumulating your savings for a down payment on a house or a car. Long-term goals usually relate to a retirement plan or a college education plan for your children and last longer than medium-term goals.

After setting your financial goals you then have to make an action plan. For example, if your goal is to better control your spending, then you have to set a budget. If your goal is to protect your income in case of disability or disease, you need a disability and health insurance plan. Or if you want to retire comfortably at retirement age, you have to arrange a retirement plan by selecting and choosing long-term savings or investment products.

In practice, some people sometimes have trouble getting started, and therefore never accomplish a single goal. If this is the case, then you need to prioritize your goals. For instance, take your top three goals and focus on them. Remember, you prioritize your goals based on what's most important to your financial future.

Action to secure financial freedom in the future must be taken right now. And it all starts with a realistic and precise time frame of financial goals supported by discipline and commitment.

2006-08-28T20:49:00.000-07:00

Personal Finance: Setting a financial goal

Action to secure financial freedom in the future must be taken right now. And it all starts with a realistic and precise time frame of financial goals supported by discipline and commitment.

2006-08-28T20:39:00.000-07:00

Personal Finance: Financial health checkup (Part I)

There's nothing special about visiting a doctor for a medical checkup, but have you ever checked your financial health? Do you know your precise financial condition? You don't need to see a financial adviser to figure out the big picture of your financial performance. You can do it yourself by with simple calculations and comparison.

There are three tools you can use to check your financial condition: balance sheet, income statement and financial ratios. These three things are the essential first steps to doing any kind of personal financial planning.

Balance sheet

This is used to assess your financial position and your entire net worth at a specific point in time. An income statement is used to indicate where you spend and save your money during a certain period. Meanwhile, financial ratios are used to measure your financial performance by comparing some key financial positions. They also provide warning signals for you to detect deterioration in your financial condition.

A balance sheet consists of three sections, that is, assets, liabilities and net worth. Assets are things you own and liabilities are debts you owe to other individuals or financial institutions, whereas net worth tells you how much your true wealth is at a given point in time.

Assets

There are three main categories of assets, that is, current assets, investment assets, real property assets and personal assets. Current assets are cash and other near-cash assets that can easily be converted into cash with minimal loss in value. The common types of current assets are cash, savings and checking account, time deposit and money market instruments with less than one year maturity. These assets are typically held for emergency needs and other expenditures and not for long-term purposes.

Investment assets are intangible assets kept for generating returns and held for long-term objectives such as retirement or an education fund. They include mutual funds, stocks, bonds, insurance policies, social security and other financial instruments with more than one year maturity. Real property assets are tangible assets such as house, land, residential property or commercial property and held for long-term objectives. Personal property is tangible assets held primarily for personal enjoyment rather than for generating returns. They include cars, home appliances, antiques, jewelry, etc.

Liabilities

There are two main categories of liabilities, that is, short-term and long-term liabilities. Short-term liabilities, often called current liabilities, are debts with less than one year maturity, for example, credit card balance, utility bills and personal loan. Long-term liabilities are debts with more than one year maturity, such as car or housing loan or renovation loan.

Net Worth

Your personal net worth is computed by deducting your liabilities from assets. You will have a positive net worth if your assets exceed your liabilities, conversely, you will have a negative net worth. It is important to keep on increasing your net worth to help you achieve your financial goals.

Next time we will discuss the income statement and financial ratios which will help you control where your money goes and assess your financial position.

Prepare For Your Retirement

2006-08-24T00:28:00.000-07:00

Personal finance: Prepare for your retirement (Part 1)

Retirement may sound wonderful. There is no need to wake up early and go to work every morning, and no need to work hard and return home late at night. You can do anything and go anywhere, anytime you like. But are you ready to for it? Will you have enough money to retire?

People view retirement in different lights. Some people are eager to plan for it, while many others are reluctant, saying it is too soon to talk about. They also think that the future is unpredictable and is distant. Many people view the future as simply an extension of the past, and are prepared to just face whatever eventuates.

People often forget that the cost of living during retirement is not always less than during a career. Many people rely on a company pension fund and unrealistically expect their workers welfare fund to finance their entire retirement. These two sources of retirement income are typically insufficient to fulfill the retirement needs many dream of, except for the very basic needs.

Take a long-term view and plan ahead. It is a great idea to prepare for retirement, and there is no better time to start than now. The later you start, the less time you give your money to work for you. Procrastination is another obstacle to a comfortable retirement.

Let's have a brief look at the steps of starting your retirement plan. The first step is to set your retirement goals. You have to decide when you want to retire and what lifestyle you wish to enjoy during retirement. Whether you want to retire in lavish comfort or just live modestly, both lifestyles must be well prepared for. One simple method is to take a certain percentage as the cost of living during your retirement from your last income assumption. A typical range is 70 to 75 percent of your last income assumption. Then you project them forward using an assumed rate of inflation to find how much money you'll need in the future.

Another method is to itemize your current expenses. You may need to add to some expenses that you predict will increase in the future, such as insurance, medical expenses, leisure activities and food. You can also lower or omit costs that will not be relevant after retirement, such as work expenses, clothing expenses, housing loan repayments -- if you have paid off your house mortgage by the time you retire. You then total up these expenses and project them forward using an assumed rate of inflation to find the future amount of funds needed.

Both above methods are good enough for making a rough estimation, although they are not always suitable for everyone. You need to analyze your situation more closely, especially when you take your expenses and investing into account. But at least you can still use them for making a broad assumption and projection. Next time we will discuss another step to prepare for a fantastic and adventurous retirement journey.

Teaching Kids About Money (II)

2006-08-01T23:59:00.000-07:00

Last time we discussed allowances for children. Now we'll discuss how to teach them about spending and saving their money.
Learn to spend
Help your children devise a spending plan when they receive their allowance. Make it clear that we all must be constantly aware of where our money comes from and where it goes. Help them make a list of things they may want to buy or expenses they have to cover. Explain how some goods and services are needed and unavoidable each time, such as food and transportation fares.
Talk about these expenses with your children to decide what kind of spending they can be comfortably responsible for as you begin giving them an allowance.
You also need to tell your kids how the money should be spent. Explain to them that the allowance they receive must first be allocated for buying or paying for something they really need. Help your kids learn about choices. There are various goods with costs that vary. Teach them to choose an inexpensive item instead of more costly one. If your kids make any mistakes in buying or paying for something, correct them and give them an explanation on what they would have been better doing so that they'll learn from their mistakes. Remember, it's better to make small mistakes now rather than larger ones later.
Encouraging your children to donate part of their allowance to charity or a good cause on a regular or occasional basis is a sensible approach to teaching children about money. Learning that money can do good things for other people is a useful lifetime lesson. These are good steps for developing your child into a smart-spending kid.
Learn to save
Besides teaching your kids about the way to spend money, the way to save is important too. When your kids ask for a particular toy, rather than saying no, try to explain that they have to save money for it. Require your kids to save a portion of their allowance for a while to buy something they want. By doing this, children will have a better understanding of how they have to make extra effort to get something they want.
Tell your kids that if they save a portion of their allowance, they will have more money in the future. Show them that money can grow in a savings account. Show them that money has a time value and can accumulate over a length of time. This is a practical lesson that will help children learn at an early age the importance of saving money.
As many experts frequently say, to teach children about money management, just give them money. Firsthand experience is vital to obtaining smart money management skills, for without the money there is no experience. The only way kids will learn to manage their money is through experience.
Money is not everything, but many things require money. To enjoy a good life, people need adequate money for all of their life stages. Preparing children to be smart money managers early on is an intelligent way of smart parents. As Franklin Delano Roosevelt said, "We cannot always build the future for our youth, but we can build our youth for the future."

Teaching Children About Money

2006-08-01T23:48:00.000-07:00

Teaching kids about money (Part I)

Money is one of the important factors to realizing a happy family. Teaching kids about money is an appropriate and judicious way to help them achieve financial success in the future. This lesson will help children to handle money responsibly. The most important thing is, however, to set children examples and start teaching them as early as possible.
Some parents give their children money every week or month, even quite big amounts. Other parents do not give their children money because they believe that giving their children money will spoil them. Many parents don't deal with their kids' money management problems until their children reach adulthood. Most kids are never taught the skill of money management until it's too late.
Teaching children early on how to spend, how to save and how to share is the best way to make them financially literate. It can also develop good habits that last a lifetime and help them have a secure future. Teaching kids about money and how to use it wisely is an art of family money management. How is it and what should be done? Here are some tips many personal finance experts frequently suggest.
Learn to manage money
The first step is to give them an allowance. Having a regular set allowance as their own income is the only way kids can learn to manage money. By having a regular allowance they will know the limit of available money and how to use it wisely. It then forces kids to think about how much things cost, and to make spending choices between the many things that they may want. It can also teach them to have more appreciation for the things they buy when they use their own money.
When is the best time to start giving kids an allowance? For many kids, this may be as young as three of four. At that age, many kids show an interest in and an understanding of the concept of money. Many experts suggest that their first allowance should be given at a minimum of once a week.
How much of an allowance should be given? Many parents will give a different answer to this question. In fact, we can determine by estimating what they will buy and what they will do. Let them learn to manage their own money and let them make their own decisions. Another way is to make a list of what they are expected to pay for with their allowance. The total required becomes their allowance.
Another important thing is that the allowance should not be tied to chores. As a member of the family, your kids have certain responsibilities around the house, and those responsibilities have nothing to do with allowances. Let them do chores without any payment for them. This approach keeps them doing their chores without asking how much they will be paid every time you ask them to do something around the house. Allowances teach money management. Chores teach family responsibility. Give your child a choice of chores and just praise your child for doing the chores well.
That's just a brief overview on how to manage allowances for your beloved children. Next we session we will discuss how to teach children to spend and save their money wisely.