What better time than the New Year to capture a picture of yesteryear and the vision for tomorrow. How will you spend your leisure time? Will it be worry free? Leisure is often defined as freedom of time – consuming necessities, responsibilities, or activities. To be best enjoyed, we earn this right to leisure by preparing for it. This is what captures leisure as a priority and not the financial costs of doing so.
A crucial step in preparing for your time of leisure is to update your net worth statement, at least once a year. December 31st is not a necessary date for this, however, be consistent with the time of year you choose. I find the New Years’ holiday is my perfect time to tackle this, removing it from my priorities.
Where to start? Compile assets owned (trust(s), individual or jointly) including bank/brokerage accounts, mutual funds, retirement and benefit plans, insurance policies, certificates, bonds, notes held, personal property and real estate. List each account, how held (Joint, Trust, Qualified Plan or Individual), the account number and current value; if not clearly valued; include it regardless for $1.00. You will find notations other than current value will become purposeful in your other pillars of planning.
Your net worth statement serves four (4) primary purposes. It documents where you stand financially. It is a reminder to take action. Families use it as a starting point to locate assets when necessary and finally, it provides a tool to make informed decisions. Are you pleased with the progress you’re making? Have your decisions last year met your objectives? If you are nearing retirement, are you secure in your current positioning and asset accumulation? Are you in great shape to take the vacation you planned or to purchase a new car?
If you focus on a direction and continue to map out your journey, you will increase the probability of accomplishing your destination. Similar thinking holds true for developing financial security. Define priority spending for the upcoming year. Will cash flow be more or less than last year? What changes are significant to be factored into your financial goals? How much do you desire to save and how will you invest? Remember most people don’t plan to fail, they fail to plan. Once you design a plan, there are few reasons to get off course. Stick to the plan unless a significant event occurs to change your short term, one year goals. Make those family gifts, encourage leisure time with family and friends. Can you plan and pay for family time together?
Use this annual review time to set your long-term goals, for example, your three-five year strategy. Develop a plan that addresses short-term goals and long-term objectives. This is great for couples to determine if they are on the same page emotionally and share the same vision. If not, managing finances could be a real challenge. Talk openly about your concerns and goals, focusing on a plan that works for you both. My husband, Jan, and I particularly like encouraging couples to share self assessment evaluations available as a discussion reference. Assessments are easy, and reference your personality, your view about money and how you handle decision making, your values and what drives you. There is no right or wrong, just a way of communication styles that really help you each engage for a deeper more meaningful discussion and direction.
Keep one file for your yearly net worth/financial reviews. This is not the same as reviewing investment results. The net worth compilation takes into consideration your spending, savings and appreciation of your assets. If you are doing a good job in planning your financial future, you should be pleasantly surprised as the years go by. Happy New Year and Happy Planning!