Before I became a Registered Investment Advisor I visited other planners and insurance people. They would ask a few questions and type stuff into their computers and out would come financial projections. I questioned where the data came from and quickly learned that they had no idea. When I became a Financial Advisor, I vowed to use my own excel programs so I would know exactly where the numbers came from.
Here are two excel programs which can help your financial planning:
The first I call the “Year-to-Year” chart. It is very simple. Put your age, your spouse’s age, and the current year in the boxes. The program will list future years and your age at each year down the page. Here you have the rest of your life on one piece of paper. Now, with a pencil, draw horizontal lines across the page under the year or age when a significant financial event will take place. Your goals: buy a car or house – note where the money will come from? The year the car or house will be paid off – write down what you will do with the extra money. Customize the list: eligible for Social Security, kids or grandkids go to college, save my first $1000, world travel. This is an easy chart to help you plan your financial strategy. Remember, however, that life changes so you must revisit this chart every few years.
Next is an Expense Spreadsheet. Don’t call it a “budget” because budget has a bad connotation – a budget means can’t/don’t/sacrifice. Call it a “Spending Plan.” It is just like saying “eat healthy” rather than “diet.” Most people don’t know where 25%-50% of their money goes. Tracking your spending will show you where your money goes, and then it is up to you to decide if it is going to the right places. Since everyone is different, each of us must come up with his/her own way to track expenses. This chart is just an example, a suggestion. Some write down everything they spend in a little notebook, others do weekly summaries. The idea is to not leave anything out, all money spent must be accounted for. It is especially difficult to include periodic expenses in a monthly spending plan, things like semiannual insurance payments or yearly property taxes. What you need to do is come up with “categories” for expenditures. Try several ways until you find something that works for you.
If you have suggestions on how to do this better, please tell me. If you want a copy of my spreadsheets, please ask.