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Savings
Fitness:
A Guide To Your Money and Your Financial Future
 Your
Savings Fitness Dream
Getting Fit...
Managing Your Financial Life
It starts with a dream, the
dream of a secure retirement. Yet like many people you maywonder how you
can achieve that dream when so many other financial issues have priority.
Besides trying to pay for daily living expenses, you may need to buy a
car, pay off debts, save for your children's education, take a vacation,
or buy a home. You may have aging parents to support. You maybe going
through a major event in your life such as starting a new job, getting
married or divorced, raising children, or coping with a death in the family.
How do you manage all these
financial challenges and at the same time try to "buy" a secure
retirement? How do you turn your dreams into reality?
Start
by writing down each of your goals on a 3"x 5" card so you can
organize them easily. You may want to have family members come up with
ideas. Don't leave something out at this stage because you don't think
you can afford it. This is your "wish list."
Sort the cards into two stacks:
goals you want to accomplish within the next 5 years or less, and goals
that will take longer than 5 years. It's important to separate them because,
as you'll see later, you save for short-term and long-term goals differently.
Sort the cards within each
stack in order of priority.
Make retirement a priority!
This needs to be among your goals regardless of your age. Some goals you
maybe able to borrow for, such as college, but you can't borrow for retirement.
Write on each card what you
need to do to accomplish that goal: When do you want to accomplish it,
what will it cost (we'll tell you more about that later), what money have
you set aside already, and how much more money will you need to save each
month to reach the goal.
Look again at the order of
priority. How hard are you willing to work and save to achieve a particular
goal? Would you work extra hours, for example? How realistic is a goal
when compared with other goals? Reorganize their priority if necessary.
Put those that are unrealistic back into your wish list. Maybe later you
can turn them into reality too.
We'll come back to these
goals when we put together a spending plan.
Beginning Your Savings
Fitness Plan
Now let's look at your current
financial resources. This is important because, as you will learn later
in this booklet, your financial resources affect not only your ability
to reach your goals, but your ability to protect those goals from potential
financial crises. These are also the resources you will draw on to meet
various life events. Calculate your
net worth. This isn't as difficult as it might sound.
Your net worth is simply the total value of what you own (assets) minus
what you owe (liabilities). It's a snapshot of your financial health.
First, add up the approximate
value of all your assets. This includes personal possessions, vehicles,
home, checking and savings accounts, and the cash value (not the death
benefits) of any life insurance policies you may have. Include the current
value of investments, such as stocks, real estate, certificates of deposit,
retirement accounts, IRAs, and the current value of any pensions you have.
Now add up your liabilities:
the remaining mortgage on your home, credit card debt, auto loans, student
loans, income taxes due, taxes due on the profits of your investments,
if you cashed them in, and any other outstanding bills.
Subtract your liabilities
from your assets. Do you have more assets than liabilities? Or the other
way around?
Your aim is to create a positive
net worth, and you want it to grow each year. Your net worth is part of
what you will draw on to pay for financial goals and your retirement.
A strong net worth also will help you through financial crises.
Review
your net worth annually. Recalculate your net worth
once a year. It's a way to monitor your financial health.
Identify
other financial resources. You may have other financial
resources that aren't included in your net worth but that can help you
through tough times. These include the death benefits of your life insurance
policies, Social Security survivors benefits, health care coverage, disability,
insurance, liability insurance, and auto and home insurance. Although
you may have to pay for some of these resources, they offer financial
protection in case of illness, accidents, or other catastrophes.
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