Creating SMART Action Plans

Okay, go ahead and give yourself a little pat on the back – after all, you’ve already gotten off to a great start in 2010:

1)      Went back to work this past week

2)      Holiday decorations are put away

3)      The massive intake of rich foods from the holidays has slowed

So, now what?  Many of us make New Year’s resolutions, which I don’t like.  The reason why is that they suggest a major change in habits, without any realistic expectations or timelines.  Sure, all of us would like to save more, eat better, etc., but how many times have we made a resolution only to see it fade into memory by the Super bowl?

As you think about goals for 2010, especially financial goals, I would encourage you to create SMART action plans.  In its simplest terms, a SMART action plan helps you take a goal you have and determine “how much of what by when”.  Here’s what the SMART stands for:

Specific – this could be defined by who, what, where, when, why.  Not just saving money, for example, but how much money over what time frame.

Measurable – can you determine if you’ve met the specific goal you just set?  Increasing savings by $12,000 in 2010 by putting away $1,000 per month, for example, is measurable.  You’ll know at any time how you’re doing based on the annual goal, as well as the monthly “pace” goal.

Attainable – if we were all great at saving, there would be no need to set goals.  However, for many of us, it’s a challenge.  A goal is attainable if it’s possible, but a challenge.  Creating a “stretch” goal with milestones along the way is absolutely recommended.

Realistic – to be realistic, you must be willing and able to work towards the goal.  While it’s fun to dream about saving $1,000,000 in 2010, it’s probably not realistic.  However, increasing savings from 10% of our salary to 15% may indeed be realistic.

Time Sensitive – all goals must have a finish line.  Adding $15,000 to mutual funds is not time sensitive, whereas adding $15,000 to mutual funds by then end of December 2010 has a finish line.

Okay, let’s put a sample goal to work by making it a SMART action plan – since saving money is a popular goal (and I encourage you to always have at least 6 months’ worth of income in savings), here’s a SMART action plan based on saving money:

“Increase savings $24,000 in 2010 by transferring $1,000 from checking to savings each pay period prior to paying any bills or spending money elsewhere.”

Specific – check.  Measurable – you bet.  Attainable and realistic – it all depends – does your income support additional savings at this level, and have you been good at saving in the past?  Time sensitive – definitely.

For more help in creating SMART action plans, or for other ideas in getting financially organized, contact me at jamie@shulmanfinancialsolutions.com or visit my website here.

Finance Dating for Beginners

Let’s just say it’s not your typical date night – on the first Saturday morning of each month, my wife and I partake in a monthly ritual we’ve now formally dubbed our “finance date.”  After picking up Starbucks (tall half café skinny cinnamon dolce latte for me, grande decaf skinny vanilla latte for her) we huddle around the computer, pull up our balance sheet, and talk finances.  Okay, I know it’s not a romantic dinner and dancing, but it’s one of the most important (and bonding) dates we have each and every month.

So, just what is a finance date, and why would you and your significant other want to spend time away from other, more fun, weekend activities?  Start with this test – each of you take a piece of paper, go to separate rooms, and spend a couple of minutes jotting down all of your assets and liabilities; additionally, rate your overall financial “health” on a scale of 1-10.  Next, compare notes – if only one of you (or neither) comes close to providing detail about your assets (bank accounts, investments, etc.) or liabilities (mortgages, credit cards, etc.), or if you are more than a couple of points different on your rating, a finance date is for you. 

Here’s what a finance date is and is not: 

A finance date is an ongoing specific opportunity for you and your significant other to have an open and honest dialogue about your personal finances.  This opportunity should spur conversation about financial dreams and fears, goals, and a chance to hold each other accountable to knowing where you stand.

A finance date is not a chance to point fingers (spender vs. saver, round I), blame one another (“I can’t believe you spent $ __ on __”), or complain about your current situation.  The focus of a finance date is to discuss and plan together for the future, while only using the present as a starting point.

Recommendations for a successful first and ongoing finance date:

Set the stage – whether you know nothing about your finances, completely run the financial household, or just want you and your significant other to be more involved (together) in finances, share why you want to spend ongoing time with this activity.  

Pick a day – frequency and consistency are pretty important so that you’re always looking at your finances from the same perspective (i.e. switching your date to before or after a payday or mortgage payment can skew your financial picture).  I recommend meeting monthly, and early in the month (we meet the first Saturday of each month).

Go on your finance date – here are a couple of agenda suggestions:  

First, brainstorm some questions that each of you independently should think about and answer, and then bring together to share.  These are great conversation starters:

What are my top savings priorities?
What is my biggest financial fear?
What do I want my significant other to know about my finances that I haven’t shared?

Next, meet in a safe, comfortable area – having access to a computer and the internet is a must, having nosy neighbors listening in is a big no (that’s why we get Starbucks and bring it home!).  I recommend starting your meeting by updating a household balance sheet.  Use that as a starting point to see where you are, and then utilize the conversation starters. 

From there, it’s really up to you.  Whether it’s been a good month or a bad one financially, try to each point out at least one positive, and always try to set a goal to review at the next date.  Relevant topics that are great to discuss on each date include:

Budgeting
Goal planning
Major (upcoming) purchases
Asset allocation – 401k, IRA, and other long term investments
Planning for emergencies / reserves

Best of luck, and I encourage you to always keep in mind why you’re doing this – never a time to blame or judge, but rather, simply an ongoing chance to communicate and bond with your significant other about a pretty important topic!

Need help with starting the dialogue, or putting together a balance sheet?  Success story to share?  Contact me at jamie@shulmanfinancialsolutions.com or visit my website here.

Taking Stock – The Power of a Personal Financial Inventory Assessment

These days, it is easy to understand how any of the following could create anxiety, stress, or fear:

1)      The arrival of a quarterly 401k statement in the mail
2)      Seeing a new “for sale” sign on a home next to yours (and finding out the price – yikes)
3)      A “personal invitation” (i.e. summons) from the Superior Court of Arizona to participate in the time honored tradition of jury duty

Well, maybe the jury duty summons didn’t exactly create a lot of stress, but given that both my wife and I received one in the past three weeks, I’ve got to throw in a quick pity-party-complaint.  Oh well, I digress…

With property values, 401k’s, and other investments going down, it’s easy to understand why tracking personal assets and liabilities couldn’t be much fun right now.  I’m a big believer, though, that there’s great value in taking time to track what you’ve got, what you owe, and what your worth.  Here’s why.

Creating a personal balance sheet helps you create a financial game plan, and without a game plan, working towards financial achievements is a lot like driving a car by looking through the rear view mirror.  An assessment, over time, of your worth helps create a roadmap for financial growth and success.

Furthermore, an understanding of personal assets and liabilities can create value for loved ones in the event something should happen to you.  Whether you’re retired or just starting out, married or single, chances are there may be someone who would benefit by knowing what you have if something should happen to you.  I know for me, I sleep better at night knowing that my wife knows our financial picture (good or bad) at any time.

So what is a financial assessment?  Basically, my vision for a financial assessment is the creation of a tracking tool (a.k.a. personal balance sheet) that tracks assets (what you’ve got), liabilities (what you owe), and net worth (assets minus liabilities) over time.  While it may not be valuable to go back months or years, I’d recommend starting with today.   In terms of a template, you can go all out with online/software tracking tools like Quicken, free applications (love the IPhone) like Mint, or you can go real basic by creating an excel chart (which I do). 

So, what to include in your balance sheet?  I recommend breaking down your assessment into categories – assets, liabilities, and net worth (which will be the difference between the two, and hopefully a positive number!) 

Assets are typically made up of short term assets / liquidity (cash, readily marketable securities, cash value of life insurance), retirement  assets (401k, IRA), and long term assets (home, car).  I like to track liquidity separately because that can be a good measurement for goal planning (i.e. down payment on future home or car, money needed in case of a layoff, etc.).  Other than long term assets, with the beauty of the internet, you can probably look up all the banks and investment companies through their websites.  I realize that tracking of long term assets, especially over time, is a little bit of a guess, but be sure to leverage resources such as current home listings in your neighborhood (to assess where your home is at) or Kelly Blue Book (car value).

Liabilities are typically made up of credit cards, student loans, car loans, and home mortgages.  Again, with a little internet navigation, you should be able to look those up easily.

So, you’ve created the balance sheet – now what?  Okay, I’m not here to judge; that’s your job!  I wouldn’t put too much stock in where you’re at today, but rather, where do you want to be in the future?  I’ve found that simply tracking finances diligently creates more accountability and ownership to financial goals.  Keep in mind what’s in your control and where you need to be patient – 401k and/or home value going down?  Stay patient, historically, those are both great investments (and offer key tax benefits).  Liquidity where you want it?  This is a little more in your control – the recommendation these days is to have at least 6 months of wages saved in cash.

Good luck – and remember, for more individual help (including helping you put together a balance sheet), feel free to contact me at 602-826-1732 or jamie@shulmanfinancialsolutions.com.  Also, check out my website for my organizational help ideas at www.shulmanfinancialsolutions.com.

Next Time – Finance Dates 101 – it might be the best date you and your significant other ever have!