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Downtown Avalon Park Business of the Week: CPA Solutions

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Financially Fit in 2019 – CPA Solutions ­

We usually associate New Year with a new beginning, a fresh start which is often followed by New Year’s resolutions – we set goals to loose weight, get physically fit, visit new destinations, spend more time with family and friends, etc. What about personal financial goals? Should one of your New Year’s resolutions be to get financially fit?

For many, financial planning is a daunting task and a general consensus is that it will restrain one’s life. It is true that becoming financially fit will require discipline and consistency but in the end it will actually translate into a peace of mind, security and freedom. Financial freedom is a very powerful thing as we all know that financial struggles lead to enormous stress, constant worries and disagreements with our loved ones.

I will not tell you that you will become a millionaire in six months or that you will pay no taxes on your income but I will tell you that you can start with these five steps that will get you a lot closer to your financial freedom.

This is Part I of the series for complete financial transformation.  

  1. Get your picture crystal clear

Understand what position you are in today so you can plan wisely for your future – list all your assets and liabilities. In simple terms – assets are what you own and liabilities are what you owe to others. This is the most important exercise so don’t cheat yourself.

A. Assets will include:

i. Bank accounts (checking, savings, money market)

ii. Investment accounts (brokerage accounts such as E-Trade, Scottstrade, Fidelity, Vanguard, etc.)

iii. Real estate you own (fair market value as of the date of this exercise)

iv. Retirement accounts (IRA, Roth IRA, SEP IRA, 401K, 403B, etc.)

v. Stock you own if it wasn’t listed in your brokerage accounts above (restricted stock or stock options from your employer)

vi. Whole life insurance policies – only list cash surrender value, if any

vii. Tangible property such as automobiles, boats, jewelry, equipment, art – be careful with this as many people tend to “over value” their tangible property – what is your dining room table really worth if you had to sell it on E-Bay?

viii. Loans to family and friends

B. Liabilities will include:

i. Credit card debt, including department store cards

ii. Bank loans – lines of credit, vehicle and boat loans, other short term loans

iii. Student loans

iv. Mortgages on your primary home and rental properties, including HELOC loans

v. Loans against your retirement accounts

vi. Loans from family and friends

vii. Other commitments that may include pledges to church or charity

viii. Unpaid tax liabilities – income taxes and property taxes

ix. Unpaid child support or alimony

2. Understand your spending habits

A. Obtain last 6 months of your bank statements and credit cards statements

B. Categorize all expenditures into these categories:

i. Mortgage or rent payments

ii. House maintenance and repairs

iii. Insurance – homeowners, auto, boat, general liability, disability, health and life

iv. Utilities

v. Groceries

vi. Clothing

vii. Child care – tuition, after school program, summer camps, sports, dance, etc.

viii. Loan payments other than mortgage – vehicle and boat loans, short-term loans and other

ix. Credit card payments

x. Entertainment and restaurants

xi. Gifts

xii. Travel

xii. Savings such as payments to your kid’s college funds, transfers to your brokerage accounts

3. Embrace a debt-free road

What I mean by debt-free does not necessarily mean no mortgages or loans whatsoever (of course its great if that is the case as well!) but more so getting rid off high interest credit cards and loans

A. Create a list of all your debt (mortgages, car loans, boat loans, student loans, credit cards, department store cards, private loans) in descending order listing highest interest rate borrowings first

B. Add columns/fields to each loan with the following information:

i. Balance owed

ii. Annual interest rate

iii. Minimum monthly payment

iv. Minimum monthly payment + 10% of the total balance owed

v. Minimum monthly payment + 20% of the total balance owed

C. Create a separate list with balances under $500

D. Read the steps in the next section for payment options

4. Create your personal budget

The success element of any budget is not creating one but sticking to it. If you are going to do this you will need to make a commitment to follow it.

A. Add your recurring monthly income to have the total available monthly cash

B. From the item #2 list pick out top 5 priority bills

C. Keep a running total of the cash balance remaining – total income less the monthly bills

D. From the item #3 list pick out top 3 most costly borrowings

i. Add Minimum monthly payment + 10% of the total balance owed

ii. If you are able to do it add 20% principal payment to the total balance owed

E. From the item #2 list pick out top 5 second priority items

F. Fet rid of 5 bottom monthly bills – I guarantee you can live without them

5. Identify your financial goals

Think about your short, medium and long-term goals. How much do they cost? Are you on track to meet them?

A. Some long-term goals, such as traveling in retirement, may not change substantially year to year. Short-term goals, such as paying off a credit card bill, and medium-term goals, including saving for a house, may change more frequently. You might decide to reevaluate those every three to six months

B. Aim to save at least 10% of your earnings to meet short-term and long-term goals

I know this is a lot of detail information that is boring to a person with no financial background but I also know that when someone reads an article about budgets there is no step-by-step direction on how to create one. I am an accountant by trade but I am also a person who once was divorced and broke at 26 years of age.  

I can’t change your life but I can give you powerful tools to use towards your journey to financial freedom. Give us a call today to start your way to financial freedom in 2019: 407.650.9088.


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