Choose a Starting Point
I had a flashback of a memory this month when I rented a Hertz car and the agent asked, “Would you like a GPS with that?” I responded, “No, I have one on my phone.” This memory made me realize how ubiquitous GPS-enabled navigation apps are now.
When you select a destination on your GPS, the next required field is to choose a starting point. Choosing a starting point is essential, especially if you want to start off the new year with a good financial plan. Your financial destination may be a secure retirement fund, a home purchase, college savings, cash to start a business or any other financial goals. For instance, one of our bank customers planned to move onto a boat and travel down the intracoastal waterway. Another wanted to start a business in the tropics. I am happy to say that both achieved their goals and I was happy to attend their going away parties.
After this very challenging year, you should think about where you would like to be financially in the next year and in the years to come. This planning process is an important stage in reaching your financial goal. Unfortunately, many folks drift from year to year and wonder why they are not better off.
The suggestion, based upon years of actual experience working with people from all income levels, is to pick a financial destination and then determine what your starting point is. This might seem self-evident, but many people do not know what their financial situation actually is. If you do not know where you are starting from, it is hard to know how to get where you want to go. Besides, we would not want to be like the tourist who pulled over in Shell Beach and asked a local how to get to Carencro. After a lot of thought, the response was “If I were going there, I wouldn’t start here.” Well, in the financial world, you have to start where you are.
The way to do this is to create two lists, a list of what you own and a list of what you owe. To start a list of what you own begin by identifying all your financial assets such as cash, checking account, savings account, investments, etc. Then, list items that you own, such as cars, boats, furniture, art, equipment, etc. Finally, list your real estate holdings, such as a home or rental property. When you add all these things up you will have a total asset number.
Next list all the amounts of money you owe which includes credit card balances, payday loans, mortgage or car loans, and any other amount of money that you owe to anyone. This list when totaled is your amount of liabilities.
Once you complete these two lists, it is time to calculate your net worth. Your net worth is calculated by subtracting what you owe, your liabilities, from what you own, your assets. There is no need to panic if the number is negative. Many people, including me, will have negative net worth at some point in their lives. The point is to know your starting point.
If you are indeed in the hole, meaning that you owe more than you own, the first step is to quit digging. In other words, start spending only the amount of money you make or less going forward. Once you quit losing ground, you can begin the process of making progress towards your goal.
Ultimately, we encourage you to spend some time over the holidays to think about where your starting point is so that you may begin the steps to get to your financial destination.