Achieving Financial Goals

By George Nabeshima
Wednesday - December 27, 2006
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The Season’s Quest team (from left) George Nabeshima, Chris Lau, Chris Abuel and Wilma Yuen
The Season’s Quest team (from left) George Nabeshima,
Chris Lau, Chris Abuel and Wilma Yuen

Ask the average American if he or she has a financial plan and you will get a confused look. Most of us do not spend much time thinking about our personal financial management, and the closest we ever get to financial planning is balancing our checkbooks. It is unfortunate when you think about how much time we spend making money compared to how much time we spend managing our money. Consider this: If we work 50 weeks a year, 40 hours a week, and take two weeks’ vacation, we would have worked 2,000 hours. Multiply that by the 30 to 40 working years and that’s 60,000 to 80,000 hours spent earning an income. With that in mind, how much time should we spend managing our income?

If we understand the magnitude of this situation, then it is quite overwhelming. Imagine for an instant if we were building a bridge and it would require 30 to 40 years to complete. Would we just start working or would it make more sense to plan out our project first with a few drawings, a list of inventory and equipment, and a timeline with major benchmarks to identify if we are on schedule? Obviously, planning out our project first would make more sense.

Now let’s transfer this understanding to personal finance and we can conclude that people should have a financial plan to guide them in money management issues.

But what is a financial plan and what does it consist of?

A financial plan is simply a plan that organizes tangible and intangible financial resources to achieve a desired financial outcome. It generally consists of three major components. These are inventorying what we have, identifying financial goals and developing a course of action.

As part of the first component, we should start by listing what we have available. We do this with a budget and a net worth statement. We can begin by writing down what we earn each month and list how we spend it. This is our budget or income statement. Then we list what assets and valuables we own and compare that list with what bill balances exist. This calculates our net worth. With these two documents, the budget and net worth statement, we have a good starting point and understanding of what’s financially at our disposal.

The second part is rather fun since it will allow us to identify our financial goals and what we want to achieve financially. This could be a new home, a college fund for our children or a financially secure retirement. We identify the time frame for our goals and the amount of financial resources needed to allow the financial dream to become a reality. An important element in this step is to establish why our goal is important. For example, a secure retirement could mean achieving a financially stress-free state whereby we can spend more time with our loved ones. It is important to establish why a goal is worthwhile so that we will be willing to make the necessary sacrifices to make our goals come true.

The last part allows us to plan a course of action. It’s the “how.” We determine issues like how much money we need to allocate or save each month, where to save our money and how to monitor our progress. We also determine if any type of financial documents or insurance policies need to be obtained or modified.

Financial planning makes common sense. It provides us with the advantage of direction and focused effort rather than aimless work, and it increases our ability in achieving our financial goals.

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