Breaking down your financial plan

Posted By: Dr. Frugal in Budget on 08/19/2007 at 12:21:36

You can break any financial plan into four parts:

. The goal--what you want.

. How close are you now·--what is your current situation·

. Resources--how much can you put towards your goal both now and in the future.

. Time--how long is it going to take to achieve this goal.

This is really all you need to build a simple financial plan. For example, say your goal is to save $25,000 over the next eight years. So far, you have $6,000 saved. You now need to somehow come up with $19,000 over the next eight years. Even with the most modest resources, this is a doable plan because you've got a time frame of eight years (96 months) to make it happen.

Your next step needs to be breaking down that $19k into a smaller goal; these are easier to achieve and you can relish in the accomplishment. If you divide the $19k/96 (months), you'll discover you only need to save $198 dollars a month to make this goal. Suddenly your daunting task is very doable. Bear in mind that this example doesn't account for interest. If you're earning interest on this money, you'll be able to reach that $19k a lot faster than if the money is sitting under a mattress. Maybe finding someplace to invest it is the best next step now that you know what you need.

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