Monday, April 28, 2008

Creating Your Financial Plan Step One

Are you ready to begin your financial plan? Make sure you have all your supplies from day one! Let’s get started.

First I want you to meet Julia. Julia just graduated from college with $20,000 in student loan debt (let’s pretend she had some scholarships). She also has around $5000 in credit card debt because she liked to shop when exam week stress hit or when her part time job didn’t cover that month’s expenses. She just got her first job and bought her first new car with a payment of $400 a month. (These are just to give us some numbers to work with. Her actual salary etc. doesn’t really matter remember this is not a budget.) She hasn’t just been spending though. She realizes that she needs an emergency fund first so she has been saving. Right now she has $300 in the bank. Good for her.

Now, as I show you Julia’s plan you can begin writing your own. When you begin writing your plan make it a rough draft. You can go back later and write it all pretty, but don’t waste time doing that now because you may want to make many changes before it is all said and done.

According to Dave Ramsey in the Total Money Makeover your first step should be to create an emergency fund. This is extremely important. It cannot be skipped. Without an emergency fund you will constantly use credit for any unexpected expense. This just keeps you in debt. It is a vicious cycle. Here is Julia’s Goal

Step One- Create an Emergency Fund

Goal- Save at least $1000 for Emergencies ONLY.

  • Plan- Current savings $300
    Still needed $700
    Continue saving $75 a month. Try to sell old textbooks on Cash 4 books. Add birthday money from parents in May ($100).

    Possible completion date: Dec. 2008

    Maintenance- After Emergency fund is complete maintain it at $1000. If money is needed for an actual Emergency stop step two until the fund is replenished.

Notice how detailed this first goal is. That is because this is the goal she is working on. Get out your most recent statement and see how close you are to having an emergency fund. Now, $1000 is a good starting point. If you don’t own much that can break down however you may be okay with $500. You may feel you need more. This is one of those places where you need to customize your plan. I am finished with this step, so all my plan contains is the maintenance step. For any step in the plan that does not apply to you simply create a maintenance goal.

The possible completion date can vary a lot, and it is not a necessary part of the plan. I just put it here so you can see the light at the end of the tunnel… however if your tunnel is rather long you may want to omit this. Remember, if you are seriously committed to your goal you can probably make it happen much sooner. Julia has listed a number of ways to get EXTRA money for her goal. You should brainstorm and do the same.( Cash 4 Books is a great way to sell old books around your house. Click here for the site and here for more information.)

Finally, I am glad you have made it this far, but if you aren’t writing any of this down you are wasting your time. Start making your plan now, and join me tomorrow to discuss step two.

Feel free to share your own plan or your ideas for more savings below in comments!!

Ready for Step Two? Click here.

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