In her new book, Own Your Life, 7 Essential Steps to Independence, author, speaker and lawyer Suzanne B. Quinn guides the reader through the seven essential steps to personal and financial security and independence. This article is an excerpt from her book, comprising one of the seven steps.
Goal setting is important, but good financial health begins with a grip on reality. We have to know and acknowledge where we are, before we can establish where we are going.
Start at the beginning – where you are now
The first step is to evaluate your present situation. To do this, make a list. Firstly, list your sources of income, your job, and any other possible sources of income (second jobs, income from direct marketing, interest on investments) including the amounts. Now make a list of your spending. The first part of the list is your necessities: the weekly or monthly costs that you incur on a regular basis (ie. rent or mortgage payment, property taxes, hydro, gas, water, telephone, cable). On the next part of the list, include the non-essentials, look at your last two or three months of your banks statements, or receipts collected, and list where you have been spending your disposable income, including what you spent it on and how much.
Once this information is established, you can take the next, vital step, to build a budget. There are a few things that are essential to planning for a sound future. This is what I like to call the “must have’s” because these are the elements that are absolutely essential to financial security, and they are:
o Budget – live within your means
o Savings – pay yourself first
o Emergency Fund
o Your nest egg
o Plan for your Future
o Financial Planner
Budget
Use these lists of income and expenditures to create a budget. Take a clean sheet of paper and divided it into three columns: Income/Expense, Credit (+) and Debit (-). In the first column, listed source(s) of income and then enter the monthly amounts you bring home in the credit column. Then list the essentials like rent or mortgage payment and utilities, groceries. Entered the average amount you spend on each in the Debit column. To do this, go back three or four months of bills, and add them up, then divid by the number of months (3 or 4) to get the average. For grocery bills, or other weekly payments, multiply the number by four to get a monthly amount. Then skip a few lines, then look at your final list, of other spending you have recorded over the last few months, and averaged out what you spent on gifts, clothes, entertainment, and other non-essentials.
Once this task had been completed, add up the credit column, and then total the debit column. If the total in your credit column was more than that in your debit column, you are living within your means and will be able to structure a savings plan to plan for the future and for your retirement. If the credit column is lower than your debit column, then you are living beyond your means, and you are spending more than you’re making. It’s time to make some adjustments to your spending, and look for ways to make reductions in the non-essentials list in order to balance those numbers. . The easiest place to start trimming is the non-essentials list, cut back on luxury items or entertainment costs that you can either do without, or do with less. There are credit counselors and financial planners that can assist you with this process.
Savings
An essential step to budgeting and planning for the future is savings. You should be squirreling away a portion of your take-home pay into savings. The popular suggested amount is ten per cent. You should put that as your first expense on your essential list, ideally 10% but as much as you can muster, even if it’s 3%, of money you put into a separate savings account that you do not touch. This is how you will create wealth for yourself. This is the money that you can later invest, to earn you income, and may eventually become part of your retirement plan.
Paying yourself first can serve many purposes. This can serve as your emergency fund, for the new roof you need, the flight overseas for an ill parent, or any countless unforeseen necessary expenses. It can also serve as your vacation fund, or special purchase fund, so that you’re not going into debt when you decide to take your family on a vacation, or install that long-awaited pool for everyone to enjoy. Proper budgeting and savings take time and practice.
Emergency Fund
As I mentioned above, it is important to have an emergency fund. Life has a way of dealing you a poor hand sometimes. We’ve all heard the expression “when it rains it pours”. The last thing you need to worry about after your husband gets laid off is paying for someone to repair the hole in the roof. Or maybe on your way home from work you get side-swiped by an irresponsible driver and your insurance company decides the cost of the damage exceeds the value of the car and you’re faced with having to buy a new car with the pittance your insurance paid for the value of your vehicle. These emergencies have a way of happening at the most inconvenient times, and without an emergency fund, can leave you scrambling. You might have to borrow from the bank, or worse, family, to make ends meet. An emergency fund, even with a couple of thousand dollars, will prove to be invaluable.
Planning for the future
Aside from emergencies and special luxury purchases, the most important element of savings is planning for the future. Although it is easy to live in the moment, everyone needs a nest egg for their golden years. We cannot rely on government pensions to allow us to live comfortably in our retirement years.
The only way to avoid this, is to start putting money aside for your retirement. These days, people live well into their eighties and nineties, so you could be looking at up to 30 years of retirement living. :You want to be financially comfortable and independent. There is a huge difference between being able to survive on the income you have allocated for your retirement, and being comfortable. Your nest egg can make this difference.
The most effective way to maximize your retirement planning is to consult with a financial advisor about your options. There are investments loans used to build wealth, insurance policies and countless other options that should be explored. The key is to get a professional to assist you with your retirement plan.
Financial Planner
A financial advisor can assist you with all of the above steps: analyzing your current spending habits, help you create a budget, how much you can set aside for savings, planning your retirement, and investing those funds so they work for you and earn the maximum amount of return. The financial advisor works out a plan that reflects your investment goals, within your accepted tolerance level.
This is where it is important to find a good financial advisor and one that you trust. And regardless of who they are, and how much you trust them, you must always keep abreast of your investments, and follow how they are performing.
The relationship with your financial planner should becomes a life-long relationship. You need a safe place to get counsel that you will need for the rest of your life. The ability to communicate with each other effectively is key. So someone who returns your phone calls, and makes it habit to touch base with you every now and then, is very important. So who needs a financial planner? The simple answer is everyone.
Financial health and wealth is such a huge part of our lives, we should never hesitate to seek advice when it comes to planning and making decisions. Seeking advice and taking these steps will put you on the road to financial freedom.
Suzanne is originally from Toronto and completed her undergraduate degree at the University of Toronto and went on to law school at the State University of New York at Buffalo, where she earned a juris doctor degree, and was admitted to the New York Bar shortly thereafter. Suzanne completed the requirements to obtain her licence to practice law in Ontario. Suzanne opened her own practice upon being called to the Bar in Ontario several years ago.
The focus of her law practice has been wills and estate planning, real estate, small business corporate, touching also on related issues of family law, administrative law and litigation. Her experience as a lawyer has provided unique insights into a diverse collection of life situations and circumstances of extreme hardship. Suzanne has counseled clients and businesses alike, in a variety of capacities, often outside of the legal realm. These experiences and insights have led her to pen her observations and advice into a guide from which readers worldwide can benefit.
Suzanne has spent a good deal of time throughout her career speaking to diverse groups of varying size on a number of topics. Through speaking engagements, Suzanne teaches others to take back control of their lives, finances, careers and time.
Suzanne currently lives and works in Woodbridge, Ontario. She is married, with three beautiful young children. Her family continues to motivate and inspire her every day.