By Karen Poff
Your car's GPS system uses addresses to guide you from where you are now to where you want to go. With finances, people also need a system to guide their decisions and actions.
Where are you now with your finances? Where do you want to be a year from now? The beginning of a new year is a great time to take stock of your financial situation and program your "financial GPS."
1. Complete a Net Worth Statement -- A net worth statement is a snapshot of your financial situation on a certain date. Although it can seem complicated, it is simply what you own minus what you owe. You can find a net worth worksheet on page 7 of our publication, "How to Make Your Money Go Further," at http://tiny.cc/32zo9w. Use it to add up all of your assets (cash, bank accounts, property, cars, real estate, investments, etc.). Then subtract all of your liabilities (car loans, mortgages, other loans, credit cards, past due bills, etc.). The resulting number is your net worth. A negative net worth can be discouraging, but try not to let it get you down. It is simply a statement of where you are now. The real question is: where do you want to be a year from now?
2. Set Financial Goals -- Financial goals are like the destinations on your road trip. Unless you are just out for a Sunday drive to enjoy the scenery, the purpose of your trip is to get somewhere. Goals identify your destinations specifically enough that you will know when you have reached them. Perhaps you want to increase your net worth by $5,000 in 2014. Or maybe you want to save $2,500 for a vacation next August. To reach these goals, you have to program them into your GPS system. That means they need to be written down as a line item in your spending and savings plan.
3. Create a Spending and Savings Plan -- Some people call this a "budget," but it is really just a plan for how you will spend and save your money during a certain time period. Our "How to Make Your Money Go Further" publication includes a variety of forms you can use to create your plan. Use it to list all of your income, determine expenses, plan for seasonal expenses, and balance your income and spending. Be sure to include each of your goals as a line item in your spending and savings plan. How much will you need to save each month to be able to take that vacation next August? How much debt will you have to pay down per month to increase your net worth by $5,000? If the goals are included, you will be much more likely to reach them.
4. Expect Detours and Delays -- When traffic is stopped by an accident or the road sign indicates a detour, your GPS suggests alternate routes to your destination. Your spending plan will not be perfect. But detours and delays should not STOP you from achieving your goals. When "life happens," there is something you can do instead of giving up. Adjust your spending and savings plan accordingly and keep following it. The guidance provided by your "Financial GPS" will keep you on track to reach your desired financial destination in the year ahead.
If you need more information on how to program your "Financial GPS," consider participating in our Managing Your Money series in 2014. For more information, you can call me at 540-459-6140, e-mail me at firstname.lastname@example.org, or call your local office of Virginia Cooperative Extension. You can also "friend" me on Facebook (facebook.com/karen.extension). Happy New Year!
Karen Poff is a Senior Extension Agent with Virginia Cooperative Extension, serving the Northern Shenandoah Valley and specializing in Family Financial Management. She has worked for VCE since 1987. She holds a master of public administration degree from James Madison University and has been certified by the Association for Financial Counseling and Planning Education as an accredited financial counselor.