Posted on January 8, 2018 in ,

Aligning Your Financial Needs with Your Financial Plan

The new year is here! If you don’t already have a financial plan, it’s a great time to work on one. The three most important steps to get started are figuring out how much money you have coming in (your income), how much you are spending (your expenses), and building an emergency fund. Looking at your income will tell you how much money you really have to work with, after taxes. Total up your expenses, subtract them from your income, and you’ll have a good idea of how much your bank account should grow every month if you stick to the plan.

Your income includes all the money you have coming in regularly. This could be income from a primary job, rental property, current investment or maybe a side job. If you are collecting Social Security or receiving disability payments, include those also. You should also include income from a part-time business or side hustle if it is something you do regularly and it generates income for you. Don’t make the mistake of including a hobby or pastime here – hobbies are expenses, not income unless it’s an activity that is profitable for you and something you do regularly.

Once you know how much you are bringing in, it’s time to figure out where you are spending your money. Most of us pay rent or a mortgage, utility bills, car insurance, health insurance, and a monthly phone bill. Expenses that vary from month to month are trickier. Reviewing bank and credit card statements is a great way to figure out how much you are spending on things like groceries, household goods, eating out, and gasoline. For your first attempt at a spending plan, it’s okay to use estimates for these expenses.

Building an emergency fund is the third step to get your finances on track in 2018. An emergency fund gives you protection against unexpected events. Your emergency fund should cover at least three to six months of living expenses. Depending on your situation, a larger emergency fund might be appropriate. For example, if you have chronic health problems that could temporarily prevent you from working, it is a good idea to give yourself a larger emergency fund as a buffer. If your job is seasonal or your income varies from month to month, having a larger emergency fund can help cover unexpected shortfalls in your income.

Financial planning doesn’t need to be complicated! Taking a few simple steps now can get you on the right track. Like many New Year’s resolutions, the hardest part is getting started. If you don’t already have a financial plan, make 2018 the year you begin one. Understanding your income, being aware of your expenses, and building an emergency fund can be your first steps toward financial independence.

Peter C. Golotko is president and CEO of CPS Investment Advisors. Co-Author, Matthew Treskovich is the Chief Investment Officer for CPS Investment Advisors.