The trenches of our bank account can be a combat zone. Out of breath from debt payments, the unexpected inevitably blindsides us and valuable dollars bleed out. A financial plan is needed to start the breathing, but conflicting interests get in the way. The same life saving first aid steps needed in a crisis situation can be applied to your financial stability.
A financial plan can address financial wounds related to debt and obstacles that prevent financial growth. It should be a “living document”, meaning a plan that is regularly visited and reworked depending on your current situation. The plan will include future goals, an honest assessment of current assets, and a roadmap that sets you up for success.
Stop the Money Bleed
The first step in addressing a wound is to stop the bleeding. No matter how much money you put into the account, the problem will need to be addressed if it bleeds out faster.
Incoming vs outgoing
The regular bills necessary for basics like housing, utilities, transportation, and credit card payments are easy to spot. Keeping track of the more impulsive expenses like that morning coffee, dining out for lunch, the new hot movie that just came out, or a concert that was too good to pass up can be more challenging. Keep track of every cent for a few months.
Assess and adjust
Now that you have a couple months of data for every dollar spent, create a budget. The “B” word can sound intimidating, but it doesn’t need to be. Keep it simple. Hand written or a spreadsheet works, but record all your expenses, including the impulsive expenses you averaged over a few months. Adjust spending to balance out with your income level. Sacrifice might be required, like waiting for that movie to be available for rent or holding off on date night for another week, but this is the first step to keep the dollars from draining too quickly.
Start the Breathing
Step two in addressing a wound is to start the breathing. Once you’re able to start making ends meet without creating more debt, it’s important to craft a clear vision for the future. Not only will it guide your plan, it’ll help you breathe a lot easier.
If paycheck to paycheck has been your lifestyle, like most people, creating financial goals might feel like a concept only for the wealthy. That isn’t true. Take some time to lay out everything you want for your present and future. Start with a brainstorm of ideas, then prioritize them based on what is most important to you. Present goals might look like getting out of credit card debt and managing taxes. Future goals might entail buying a new car or house, putting the kids through college, or retirement savings. As you prioritize, it’s important to consider short term, medium term, and long term goals. Start with the greatest needs to the greatest wants and you’ll be able to match your priorities accordingly.
Expect the unexpected
The ugly reality of life is that we make plans and “things” happen. The car breaks down, the washing machine goes out, the roof springs a leak, the possibilities are endless. As you budget and approach a solid financial plan, be sure to build in an “unexpected fund”. This will lighten the blow when life blindsides you.
Protect the Wound
Finally, protecting the wound is important to the healing process. The only thing worse than taking a financial wound to the bank account is reopening an old one. This is where discipline is important. Sticking to the budget is one form of control, assessment of new circumstances is another way to protect your dollars.
Circumstances change over time. A promotion, a side job, bonuses, or a new job all together can create a different level of income. Based on the goals you’ve set, you might be able to start inching closer to the more medium or long term goals you’ve set. Revisit that budget spreadsheet and assess how you can reinvest the extra dollars.
Aside from the normal life circumstances that come out of nowhere, it’s important to weigh risks versus rewards. After you’ve found success in following a sustainable budget, even assessing after a change in financial circumstances, other investments might look appealing. Before diving in head first, devise a strategy. For example, long term savings goals can be far more impactful if invested wisely. Take the extra time to research all the options for long term growth, balance them out with your risk tolerance, and lay them all out. You’ll thank yourself later and better protect the outflow of cash.
No two financial situations are exactly the same. In fact, it can get downright complicated, especially when debt is involved. After your own assessment, a sustainable budget might seem impossible on the surface. Debt stress doesn’t have to paralyze your forward progress. Partnering with a professional can help you discover options. An amazing team can deliver on a peace of mind, guidance, and control of your financial future.