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5 Steps to Create a Foolproof Money Strategy in 2018

It's time to kick-off the New Year with a solid money strategy for success! Follow these 5 action steps to create a plan that allows you to have more control, peace, and a better financial future.

By
Laura Adams, MBA,
January 3, 2018
Episode #525

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New Year Financial Planning-5 Steps to Create Your Money Strategy

Through good times and bad, having a strategy for managing your money is the key to creating more security. If you don’t already have a financial plan or you’re not sure what you should be doing with your money, it’s time to get more clarity. 

In this post, I’ll help you kick-off the New Year with five action steps to create a money strategy for a better financial future.

5 Steps to Create Your Money Strategy

  1. Understand your current financial situation.  
  2. Decide what you really want to achieve.
  3. Review your spending. 
  4. Automate your savings. 
  5. Optimize your debt.

Here’s more detail about each step to create a solid financial plan for the New Year.

Step #1: Understand your current financial situation.  

The first step to creating any plan or strategy is to understand where you are right now. The best way to assess your current financial situation is a simple document called a Personal Financial Statement or PFS. You can create it on paper or using a computer spreadsheet, such as Excel or a Google Sheet.

The purpose of creating your PFS is to centralize what you own and what you owe in one place. It’s a bird’s-eye-view of your entire financial life so you can easily see what you want or need to change.

To create your PFS, first make a list of your assets and their current values, such as cash accounts, investments, real estate, and vehicles. Then list out your liabilities, such as a mortgage, car loan, student loan, or credit card debt, and the outstanding balances.

Having a higher net worth from year to year shows that you’re getting healthier--at least in a financial sense.

When you add up your total assets and subtract your total liabilities, the resulting number (whether it’s positive or negative) is your net worth. Figuring your net worth isn’t difficult; it just takes a little time to gather and accurately record all your information.

For example, if you own $150,000 in assets and have $125,000 in debts, your net worth is $25,000. I recommend updating your PFS every year so you stay focused on increasing your net worth over time by either increasing assets, shrinking liabilities, or both.

Having a higher net worth from year to year shows that you’re getting healthier—at least in a financial sense. But if your net worth is declining over time, you probably have too much debt that needs to be addressed sooner rather than later.

See also: A Blueprint to Prioritize Your Personal Finances

Step #2: Decide what you really want to achieve.

You probably know that you should have financial goals to steer your decision-making, right? But sometimes we don’t set goals because we don’t really know what we want. Or it may seem too difficult or like a waste of time if we don’t know exactly how to attain specific goals.

You may have created financial goals in the past, but they didn’t help because you completely forgot about them just a few weeks or days later. Yeah, I’ve been there.

Why not try something new this year? I recommend using a completely different way to think about success with your finances that I call your One Money Objective. It’s a single word or short phrase that gives you an intention or direction for your entire financial life.

Instead of trying to focus on too many big financial goals, staying laser focused on a single idea or achievement can feel much lighter and simpler.

Instead of trying to focus on too many big financial goals, staying laser focused on a single idea or achievement can feel much lighter and simpler. Having a One Money Objective can make you more effective when faced with a major money dilemma or when you just need a fresh perspective to get your finances back on track. Boiling your financial strategy down to one word forces you to get to the point and is much easier than trying to remember a huge, overcomplicated plan.

Now, I’m not saying that you shouldn’t have big, challenging financial goals. But what I am saying is that financial success comes as a series of small wins. You make one good decision and then another and another. Over time, the positive effects of each small decision build up for massive success.

Take a moment to choose one word or phrase that encapsulates what you really want to achieve with your money so you can live it with gusto, passion, and clarity. Dig deep to uncover what financial activity or concept drives you and gets the results you want more than anything else.

Your One Money Objective may remain constant for your entire life, or it could be a “word of the year” that captures your aspiration and motivation right now and then is re-evaluated in 12 months. Ask yourself the following questions to help figure it out:

  • What am I disappointed about in my financial life? 
  • What worries me the most about my financial future? 
  • What would I be proud to accomplish with my money over the next 12 months? 
  • What would I be proud to accomplish over the long-term with my finances?

For example, if you want to pay off a credit card over the next year, maybe your One Money Objective is “no debt.” Or perhaps you’re disappointed that you didn’t save money on a regular basis for an emergency fund, your objective could be “consistent savings.” My One Money Objective is “retirement” because I’m passionate about investing enough so that I’ll always be able to maintain my lifestyle if I can’t work or want to work less.

Once you’re clear about achieving one main goal, you can work backward to chunk it down into smaller goals that are more specific. Financial goals don’t have to be complicated, but each one requires an action plan that breaks it into bite-size pieces that you can work on over short periods of time.

For instance, if you want to pay off a $6,000 credit card debt this year, create a goal to stop making new charges and pay $500 a month or $125 a week to the card. Or you could save that amount each week or month to build up a $6,000 emergency fund within 12 months.  

See also: 3 Money Mindset Tips and Tools for Surefire Financial Success

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