Sow the Seeds for Your Bountiful Financial Plan

October 28, 2019

It’s fall, and that means harvest time. Just like the crisp apples and plump squashes at the market, a strong financial plan requires time, energy, and careful tending to produce a healthy product. 

Not everyone’s financial plot looks the same. Some of us may be paying the bills without accumulating debt, while others of us may be grappling with large loans. No matter what your financial situation is, a sound financial plan starts with understanding your finances. Management expert Peter Drucker said it best: “If you can’t measure it, you can’t improve it.”

We take stock of our finances so we can create a plan that matches what we want for our future. We plant the seeds for a healthy financial plan by taking a close look at our finances. We then tend to our financial seedlings by adjusting our habits and keeping a watchful eye on our financial plan. We aim to grow our crop by taking an active interest in our investment strategies.  

Whether you’re an expert or your financial garden has a few unruly weeds that need managing, here are a few ways you can become more engaged with your finances and take control of your financial wellbeing.

Plant the seeds for success by tracking cash flow

Taking control of your financial wellbeing begins with understanding where your money is coming from and where it’s going. We can do this by calculating cash flow — the amount of money entering and exiting our accounts. 

To calculate cash flow, open last month’s bank and credit card statements. Do your best to break them down into the following categories:

  • Income: The money coming into your bank account. This can include salary, hourly pay, self-employment pay, bonuses, and/or investments.
  • Fixed expenses: Costs that don’t fluctuate very much from month to month, if at all. Think insurance, utilities, and mortgage payments.
  • Variable expenses: Costs that fluctuate, like groceries, clothing, and car maintenance. You can further break down your variable and fixed expenses into “essential” and “non-essential” costs.  
  • Taxes: What we owe the government or are owed by the government — because this affects what we take home at the end of the day!
  • Savings: The amount you pocket for the future. This includes contributions to your emergency fund, 401(k), IRA, or investment accounts. Consider this a “cost” in your cash flow model since you’re putting it away for future use, not immediate use.

Whew! That’s a lot to break down. Once you’ve taken a breather, repeat the cash flow calculation for the previous three months’ worth of statements. 

This way we can identify patterns in our cash flow. For example, are we ending up with “positive cash flow” (meaning that the amount of cash we have is increasing) or “negative cash flow” (meaning that the amount of money on hand is decreasing)? How are we spending our cash, and does that need to change? 

The effort is worth it. It’s only once we see what’s actually happening to our money that we can begin to tweak our plan to match our life goals.

Tend to your finances by managing expenses 

Calculating our cash flow for the first time is a crucial step, but this is not a “one and done” activity. Our spending habits shift parallel to changes in our lives — if we have kids, we have to decide how to pay for school; if we decide to change careers, we have to evaluate the price of that career change. 

That means we have to manage our finances on a continual basis, rather than letting them manage us. There are many ways to check in with our financial wellbeing. Try reviewing fixed costs like your insurance on an annual basis. Ask yourself “does this premium reflect my needs and risk tolerance?”

Once you’ve checked in with your fixed costs, examine those non-essential, or “discretionary,” costs. What percentage of your income is going to discretionary spending? How much are you leaving for your savings? If there’s an imbalance, can you get creative with your discretionary spending so you can direct more of your leftover cash toward your retirement account?

By staying engaged with your finances, you can take control of your future. While calculating cash flow on a regular basis may seem like hefty work, practice makes perfect. As we get into the rhythm of analyzing our finances, the practice of financial planning becomes easier. 

Aim to grow your plot, year after year 

As we learn to manage our expenses and steer in the direction of positive cash flow, we become better equipped to make decisions about how to grow our hard-earned dollars. That’s where investment strategies come in.

Investing is an essential piece of any financial plan for three reasons. Investing can:

  1. Counteract the impact of inflation (the increase in prices of goods over time). 
  2. Help us become financially independent, meaning we no longer need to rely on employment or another person for income.
  3. Provide us with passive current income in the form of dividends.

With a carefully selected pool of investments, we can strive to grow our financial plots for many years to come.

Make the most of your bountiful garden

For some, money can be a vague, intangible thing — but you know what definitely isn’t? How you spend your time. Financial planning helps us maximize the time spent enjoying life, whether that’s time spent with family, progressing our careers, or getting away to our favorite relaxation spot. 

By honestly assessing your financial situation and figuring out what needs to change, you can create a plan that matches what you want out of life. We can help make that happen.

Singer Wealth Management