Friday, September 5, 2008

Be Your own financial planner part 2 - Know where your money comes from and where it goes

Imagine what you could do with two million dollars.

Would you spend it?  Save it?  Give some away?  Would it change your life?

The good news is you almost certainly will have at least two million dollars pass through your hands over the course of your lifetime.  The average American with a college degree will earn 2.1 million dollars over the course of their adult working life.  Don't have a college degree?  You can still expect to rake in 1.2 million.  If you have a masters degree, 2.5 million.  PhDs can expect 3.4 million and those with professional degrees will earn a whopping 4.4 million over their adult working lifetime.

Think about the total amount of money that you have earned already over the course of your life.  How many years have you been working?  Can you estimate your average salary well enough to make an educated guess about how much money you have brought in?  Are you happy with the decisions that you have made?  What do you have to show for all of your income?

If you don't know how much money is coming in and where it is going, you will struggle to accumulate wealth.  Over the course of your lifetime you will earn a significant amount of money.  Some of it, you will need to spend on housing, food, healthcare, taxes, and other things.  What about the rest of it.  Do you know where it goes?

Knowing is as important as doing when it comes to financial planning.  Planning for your retirement is one of everyone's biggest financial challenges.  If you do not know how much money that you are taking in and how much you are spending, there is no way that you can accurately estimate what your needs in retirement will be.

Handling the money that you earn is the very bedrock of your financial plan.  You do not need to have a huge salary to plan your finances well.  However, if you do not know how much money comes in, how much goes out, and where it goes to, you will not be able to effectively plan to use this money to meet your goals.

Step three in creating your financial plan is to know how much money you having coming in, how much goes out, and where it goes.  You don't need to track every penny, but you do need to have a very good feel for what happens to your money.

No comments: