Financial planning can be complicated. However, I really only need to know three things to understand whether a person is trending financially on track or off track.
Data that tells me if you’re financially on track
Keep in mind, these questions and all of financial planning are really about trend analysis. The big question always is, if everything stayed exactly the same, how is this person doing?
This isn’t all-inclusive…just like a doctor might read someone as having high-cholesterol and be able to describe the behavior of the individual; not all of it will be on target. BUT…I don’t think the value is in me interpreting three questions anyway. The real value is if YOU know the answers to these questions on your own and what you are doing around them. So here they are:
- How much do you have in cash savings for emergencies?
- After ALL monthly expenses (fixed and variable), how much do you have left over at the end of the month on average?
- How much are you saving for retirement?
The answers to these questions are all specific numbers, right? Right. So, do you know these for yourself, for your family?
I know that numbers evoke emotion. Be gentle with yourself if you don’t like the numbers that your answers contain. This is just the starting point.
You might want to ask clarifying questions as follow-up (I could actually think of at least 5 questions I get asked to clarify things whenever I ask these questions of individuals). That’s strategy. That’s like someone asking me, “How much do you weigh?” and me asking, “Do you want to know how much I weigh first thing in the morning, or at Weight Watchers, or on Saturday morning or Monday morning? Because each of those is a different number.”:o)
Or you might want to know what these numbers mean to me. Quite simply, these are the most fundamental way I have found to measure if a person is trending toward wealth building, or away from it.
How to get financially on track
Now, I might tell someone my weight number and then say, “But I am not happy with that,” – and then I can create a plan to change it. But first, always first, comes the clarity. I have to hop on the scale and accept where I am at RIGHT NOW before I can move forward with a plan that reflects that (and I am!).
With money, you have to know your numbers before you change them. I totally get not wanting to look too deeply, but you need to, in order to know what to do next. I actually don’t think you can get clear about your dreams and desires until you have a starting point.
That’s your mission this week (or this month). What are the numerical answers to these three questions? Only then, will you be able to uncover the best next steps for you and your family.
P.S. Do you need help answering this for yourself? A great way to start is to understand how your money and values are in alignment – download this workbook to get started!