Following a good model of financial planning will make the difference between future success, and future failure. While there is no guarantee of success, however you may define it, there is certainly a guarantee of failure if you don’t take the time to plan according to your end goal. Of course, if you have no end goal, making a plan might be a bit more difficult than you imagined. Most people who succeed in life do so because they have a goal in mind, and they take the steps they need to take to reach that goal.
A majority of the valley is in turmoil when it comes to housing. There’s no need to explain what has happened over the past few years. More focus needs to be placed on how you’ve learned from it, and what you intend to do about it.
The first step to planning your future is to be aware of where you are. I would bet that most of your financial stress is due to not knowing, and not knowing is due to a fear of finding out the truth. This circle of thought will prevent your from reaching your goals. Take inventory of your money. Figure out what’s going where, how much you actually make, and where you want it to go.
A Healthy Cash Flow Budget
In this order, 1) Feed Yourself, 2) Clothe yourself, 3) Keep a roof over your head, 4) Keep the lights on, and 5) maintain your transportation, whether it be a car, a scooter, or your walking shoes. Beyond that, you have room to solve your problems, or invest in your future.
If you have structured your life to give, spend and save appropriately (and I’ll define that next) then you cannot lose, and the degree to which you win will only be dependent upon the amount of income you can generate.
An appropriate method to live by goes as follows:
- Give 10% of your pay away as soon as you get it. Don’t care where, but support something you believe in.
- Keep your rent or house payment at or below 25% of your take-home pay.
- Never borrow money.
- Save 15% of your income FOREVER so it grows, and don’t choose to do anything that would jeopardize it.
- Save 15% of your income for your kids’ college educations so they don’t end up in debt.
- Invest, Give, and Spend the rest.
The big one here that I’ll touch on is the housing expense. In our current market state, where our dollar has lost value, we have nearly 10% unemployment, and our homes are worth half of what we borrowed, it’s time to look at the above formula to see if our current spending matches our ideal spending plan. If you find that you are spending more than 30% of your income ( I know, I said 25% above, but the banks approve on 30% ) on your house payment, then you are robbing yourself of the future freedom to choose whatever you want to do. You’re blowing your future away, and your current level of comfort, and in many cases, your fears, are preventing you from taking action to solve the problem.
You have people around you, who aren’t qualified to make these decisions for you, pulling you in all directions with their opinions about what you should or shouldn’t do. Here’s a tip, and a hard truth: Taking advice from someone who is broke about how not to be broke, will keep you broke, so smile, and thank them for their opinion, and then get professional advice.
If you’re house poor, and you have come to the realization that it’s time to do something about it, and your house is worth less than you owe, then your solution is to sell the house. That will most likely involve a short sale. If you need more information about this topic, or you need to speak with me about how you can solve this monumental future financial problem, please call me and we can talk about it. Knowing the facts will give you peace of mind.