You Gotta Have a Plan

If you have been following the last five weeks of this series and acting on the tasks outlined in each article, you now have an arsenal of information at your fingertips. You know your net worth, you have a budget, you understand the availability of investment and retirement options, and you have developed a system to reduce your debt. That's a lot of information. What it isn't, however, is a plan.

A plan is necessary to guide you toward security and financial well-being. Before you can begin drawing up this plan, you need the information that you have accumulated over the last five weeks. But everyone's financial picture is different. Many factors have to be taken into account and are specific to your own personal needs and goals. Where to begin? Start with a blank piece of paper.

As Gene Bowan of Zuk & Associates, Inc. said: "The art of financial planning requires sitting down and identifying what goals you have, and what timetable you want. Match your resources to fulfill those goals. [You have to] put a dollar value on these goals. Without a dollar value, you will not know how to invest in order to achieve your goals."

Sheila Moore, of SJM Enterprises, agrees. She went further: "Your [financial] requirements should be fulfilled over a defined time. [Ask yourself] what you need and wish for, and how you can achieve those goals on a sustained basis, over time." This approach differs from the "what do I need to get by this month" syndrome. "Reassess your goals once a year. New targets and new understanding of available income will help you increase your net worth," said Moore. "Periodic goal setting is a strong systematic way to approach financial planning."

Goal Tending

The first step is to write down your goals—but how do you determine what they should be in the first place? Moore offered a solid start: "One time a year, break your goals into groups. Finance goals are part of other goals. Choose simple categories such as career/professional, financial, personal (health/well-being), and self-developmental goals. Set them for three-month, six-month, one-year, and three-year time frames, knowing you can change them every year if you choose. Keep a journal on your steps of achievement. Writing them down is power. Not writing them down means they're a wish."

Taking the time to know what you want in life and committing it to paper is the first step toward planning your financial future. It is your overall goals, wishes, and needs that will determine what choices you will make financially. Without having this information in writing, you will not know where to begin your plan.

Michael O'Shaughnessy, author of Millennium Woman, suggests you "put time frames around all of your goals with measurable results. Stretch yourself, and don't worry about not achieving." Before we move to goal setting, let's start by brainstorming ideas of financial actions. O'Shaughnessy suggests:

1) Open a savings account with $50;

2) Get a free checking account;

3) Create a budget;

4) Make a plan to pay off debt;

5) Draw up a will;

6) Commit to read three financial books, one a month, to increase your knowledge of finances;

7) Go to one financial seminar;

8) Read the business section every time you read the paper, and

9) Tune into business television talk shows and radio shows instead of Howard Stern.

For now, just begin the process of thinking about actions you can take. You'll come up with many more later. Sit down and list absolutely everything you can come up with. This is your "action sheet." Then put the paper aside.

Now we have to structure these actions. In doing the following, more ideas will arise. Take another blank sheet of paper and write down the information you currently have about your financial status. Mark Pash of Pash & Benson International suggested the following: "Living expenses are the first thing you must look at. What stage are you at? You have to look at the tax bracket you are in. If you are 30-35 years old, single, and in an over-30-percent bracket in California, you can't just invest willy-nilly, because Uncle Sam will take charge. Your age has to be considered. Where you are in your career is the next thing. There are basically four areas to look at in your financial life:

1) Evaluate your resources. For actors they have to be higher than normal because of unemployment risk;

2) Maximize your qualified plans (IRAs, 401Ks);

3) Owning your own residence offers many tax advantages and investment growth, and

4) Review your investments, taking into account tax shelters and tax advantage investments."

Where do you stand? Do you have resources to draw upon in unexpected times of need? Do you know exactly how much you need to live on each month? Does your income exceed this amount? What is the total of your debt, and do you have an active plan for reducing it? Are you saving toward your retirement, with the maximum contribution to an IRA every year? Are you utilizing all tax advantages available to you on your home or income property? Do you have a plan for savings and investment?

Road to Somewhere

Take out another sheet of paper. Determine a time frame, and write down what you would like to achieve in that time frame. Moore said that it all "starts with a definition of purpose. First you must know what that purpose is. To have control and understanding of your money, you have to be realistic about your income both short and long term. Finance is one area where absolutely you are able to have substantial growth as long as you have a plan of action."

Still don't know where to begin? Ask yourself questions such as the following: Do I want to own a home someday? Should I begin saving for my child's college tuition? When do I want to retire? Do I want to buy a new car? Do I want to move to a smaller home? A larger home? Your answers will fill the gap from where you currently stand to where you would like to be. They will give you a plan of action.

Start with Bowan's suggestion: "The first thing you should establish is an emergency savings account. You don't want to be forced to liquidate investments in order to cover short-term needs. Six months [of living expenses] is what the books say. I would say you should have at least 2-3 months [of living expenses] in an account for emergencies." Taking into account the fluctuating nature of an actor's income, you should choose a cushion comfortable for you and one that covers at least three months of expenses.

How do you establish this account? "Discipline," said Moore. "It is essential to pick a percentage [of your income] and set it aside. Take 10 percent out of every dollar. Start with a savings account, then, [when you have reached your emergency account goal] you can move on and put the rest into a CD, or invest in mutual funds or purchase bonds. Habit and discipline are more important than the actual amount of money. When you earn more, you can take a bigger percentage if you like. The goal is not to touch these funds unless there is an emergency."

If you are too overwhelmed with debt right now to even think about an emergency fund, look at the system for debt reduction that was covered in Week Four. Implement it. There are various opinions on the issue of saving vs. debt reduction. O'Shaughnessy feels that "you have to get rid of debt first. Credit debts are just chains, slavery." Bowan, on the other hand, believes that "there is a happy medium in paying off debt and starting to invest. People are people—they'll always be in debt. Don't get so narrowly focused. Debt's always replaced—the car breaks down, you need a new dishwasher, etc. You can't wait until you're 55 or 60 years of age to get out of debt and find yourself with nothing saved. It is not bad to carry debt; it's important how it's positioned." The essential question is, what is your level of comfort and your financial requirements when creating a plan?

Take out your "action sheet." Do these actions now complement your long-term goals? If not, what additional actions will help you achieve them? You may find that you don't know how to attain certain goals. Your actions, then, must include some research and inquiry. Write down your goals on another piece of paper along with the time frame for each one. Under them, list the actions and short-term goals that will help you achieve them. This is the beginning of a very basic plan. Now, implement it!

A financial plan is a blueprint for the life you see for yourself. It is a map to take you from where you stand now to where you would like to be in six months, one year, 10, 20, or 30 years. It does require a few very specific commitments:

1) Belief : the unquestionable belief that, no matter where you are now, if you implement a plan of action you can achieve your goals;

2) Discipline: the discipline to stay on track, to not fall into old money habits and attitudes, and to keep the picture of where you are headed very clearly in mind;

3) Knowledge: without self-education and a basic idea of how money works, you cannot know how to make your plan work, and

4) Acknowledgment: that the best way to stay on track is to keep your achievements, as small as they may seem, in the forefront of your mind. What I wish for you is a financial plan that increases not only your net worth but your self-worth as well. BSW