I developed my passion for personal finance during a potentially catastrophic period in my own financial life. I doubt many people reading this blog have been in money trouble as deep as my family was. Though it’s an ongoing process to pull ourselves out of the hole and become financially secure, I’m happy to report that our outlook is pretty rosy.
It led to my wanting to talk more openly with friends and strangers alike about my strategies and thoughts about personal finance, to hopefully help others either get out of a bad situation or make their good finances even better. As I was preparing for the first informal discussion group, I realized just how much I have to say, and decided I needed a blog, or else no one else would be able to get a word in edgewise at the meetings!
I struggled to encapsulate my thoughts about personal finance into one coherent philosophy, and I kept coming back to the idea that cleaning house financially for me was divided into three distinct areas: the present, the past and the future. I use different strategies for each area, and though they run concurrently sometimes, the major work to deal with each came in that specific order.
To stop the bleeding and survive day-to-day, I had to deal with my present finances. Once that was done, I had to face the problems caused in the past. And once I had at least a plan to deal with those, I needed to take a hard look at my future and start to prepare for it.
A bit more about the three basics, as I see them:
The present. Maybe you’re struggling as badly as we were several years ago, watching more money go out than comes in and feeling helpless to control it. But even if you’re in basic balance, chances are if you haven’t really thought about it before, there are some changes you could make to your present cashflow situation. Either way, the budgeting techniques I’ve written about in past posts, and my quiz about the health of your budget, are the essence of the “present” part of the plan. Once you get to a place where you know where your current cashflow is going and you’re fairly comfortable with how it’s all allocated, you can move on to the next step.
The past. If you’re struggling with your current finances, chances are you struggled in the past, and the repercussions may still be hanging over your head. So here’s a little assessment quiz:
1. Do you have old debt hanging around that doesn’t seem like it’ll be gone anytime soon?
2. Do you have a smaller-than-ideal retirement fund due to either not contributing early in your working life or not contributing enough?
3. Do you have past behaviors that still crop up in the present to sabotage your financial health, such as spending binges, family or friends who ask for money, gambling, etc.?
If any of the above are true for you, the next step after clearing up your present financial situation is to face the past and try to rectify the lingering issues. You should also try and put safeguards in place to avoid the behaviors or situations that got you in trouble in the first place.
This could be an ongoing process for quite a while, depending on how deep the financial hole is from your past. For me and my family, we’re still working on all of these issues, trying to eliminate debt and build our retirement funds to where they should be. But every bit of progress you make helps your future look just that little bit more secure.
The future. Once your current budget is on track and you’ve got a plan in place to conquer the problems of the past, it’s time to look to the future. This is one of the grimmest areas for some to examine; in fact, many would rather avoid thinking about it. But even being aware of your situation can get you increasing retirement contributions.
All aspects of personal finance are variable depending on the person and her circumstances. But future planning is where it really gets personal. So here are some questions to ask yourself:
1. Do you have a basic plan for retirement: when, where and what next?
2. Do you know how much money you’ll need at a bare minimum?
3. Do you know whether your current investments and contributions are likely to get to the level you need?
4. Do you have any fantasies, dreams or goals that you would want to work toward if you knew you’d secured your basic financial needs for the future?
Everyone has different levels of income, different levels of their savings and debt, different day-to-day wants and priorities, and different visions of an ideal future. But if you start to calculate and research, little by little, you could start to see your dream seem more realistic — or, at least, see your worst nightmares about the future dissipate.
So how do you feel about your present, past and future financial picture? Do you think this is the best way to tackle things, or do you have another method that’s worked well for you?