| This Week I have posted some articles on creating a | | | | *Future value of an annuity |
| financial plan, net worth planning, and budgeting and | | | | $5,000 = PAYMENT x [ ( 1 + 3.5% / 12 )12 - 1 ] / |
| cash flow. Carrying on with this theme, my next | | | | 0.035 / 12 |
| topic of discussion is the subject of planning your | | | | PAYMENT = $410.02 |
| savings. | | | | In this example, assume you want to take a short |
| The net worth statement and cash flow statements | | | | vacation 12 months from now and you estimate the |
| are not the primary goals. These statements are | | | | cost will be $5,000. If you place your money in a |
| there to help you plan how you are going to achieve | | | | short term savings account paying 3.5% (after-tax), |
| your financial goals. They are used to help convert | | | | you will need to save $410 per month to save |
| vague aspirations of retirement, home ownership, and | | | | enough money to go on vacation. |
| vacations into clearly stated objectives. Net worth, | | | | If you complete the worksheet for all of your |
| cash flow, savings, and debt planning helps you | | | | anticipated future spending and investments, you'll |
| convert your aspirations into objectives. | | | | have an idea of how much you will need to save. |
| Planning your savings begins with your net worth | | | | Some common items that would appear on the |
| planning. Your net worth statement shows where | | | | worksheet include: |
| you are now and your annual savings will contribute | | | | • Down payment for a home |
| to you achieving your net worth goals. | | | | • Appliances |
| Set Your Overall Savings Goal | | | | • Retirement |
| Your savings plan should start with general savings | | | | • Education |
| strategies that increase your household net worth: | | | | • Vacations |
| increase your assets (i.e. increase your savings and | | | | • Major appliances |
| investments), decrease your debts, or some | | | | What Happens If My Savings Aren't Enough? |
| combination of these two options. Thus you should | | | | If your savings are enough, you need to make some |
| consider your savings plan in both debt reduction and | | | | changes. Even if your savings are enough, you can |
| asset accumulation. | | | | still make changes to your plan to better position |
| You can use a savings goal setting worksheet to help | | | | your self in the future. |
| you identify how much you need to save to realize | | | | PAY YOURSELF FIRST! Treat your savings as a |
| your goals and helps you commit a portion of your | | | | fixed expense and ensure your own financial security. |
| income to achieve these goals. | | | | This will help you avoid going into debt if there is an |
| Example Savings Goal Setting Worksheet | | | | unforeseen future expense (such as a major |
| Goal Amount Needed Number of months needed to | | | | appliance replacement). Paying yourself first and |
| save Expensed return on savings Monthly savings | | | | saving will also help you address cash flow problems |
| needed | | | | identified in your cash flow planning. |
| Vacation $5,000 12 3.5% $410.02* | | | | |