What will you do with your $5,000,000?

Did you know that the average American will manage approximately $5,000,000 over their life time? Yes, I am talking to you: the schoolteacher, the computer tech, the office manager, the average working person. Most people with average incomes don’t think of their financial life this way. That kind of money is reserved for lottery winners, jet setters, celebrities, right?

Nope, this will really happen within your lifetime. I know it is hard to believe, but it is really all yours. What will you create for yourself with your $5,000,000?

It’s OK. I understand. This doesn’t sound possible for you when you hear it.  You look around, and you think about your bills, your debts, your responsibilities. No matter where you are today with your finances, you have the opportunity to decide what you are going to create with your money. It’s true! The importance of financial planning is that it will help you get to your goals even if it seems impossible.

What Happens When You Don’t Do Financial Planning?

I am pleased to introduce you to Jessica. Jessica hasn’t done any financial planning up to now.

She just graduated college and now has a degree but, like most people, Jessica was never really taught any financial skills and never saw firsthand the importance of financial planning. She didn’t see her parents’ budget. They seemed to do OK. Sometimes there was bickering about money, but she had most the things she wanted.

Jessica went to college and picked a major, and her parents had a little money to help her along the way. She received a small amount of financial aid, and made up the balance with student loans and credit cards. As a newly graduated professional, Jessica landed an entry-level position making $45,000 a year. She rented her first apartment and bought her first new car.

Four years of financial decisions without a financial plan. Let’s see what that looks like:

Net income: $2,800 per month

Less:

Rent: $1,200

Food: $300

Car Loan: $550

Student Loans: $345

Credit Cards: $300

Total Expenses: $2,695

Remaining Monthly Money for Spending: $105

Right off the bat you can see that Jessica is in financial trouble. She has only $105 left every month, and she has not planned for basic things like car insurance, renter’s insurance, saving for emergencies, saving for retirement, or a cell phone! You can see that she will most likely continue to accumulate more financial debt. In these important early years when saving is so important, Jessica will be digging her way out of debt and wasting her $5,000,000.

Start from where you are today

You can choose something different. Your individual situation will be unique to you but the underlying issues are not. Jessica did not have a plan. If you don’t have a plan for your money, start today.  What is a financial plan? In its simplest form it is a budget. What is budgeting? To budget is to plan or provide for the use of your money in detail. Here are five tips for your budget:

1.  Keep it simple. If you have a three page budget with linking spread sheets…you have an issue.

2.  Make a weekly date with yourself (and your partner if you have one) to pay bills and update your budget.

3.  If this is new to you make it pleasant. Put on some relaxing music, light a candle, face a bright and open window (Not for jumping out of!), or whatever makes you happy. When you are finished, do something relaxing.

4.  Find support. Look for people who are good at budgeting, people who are savers. Read articles and books. Listen to radio shows or TV shows that encourage healthy financial and money habits.

5.  If you have financial messiness, be patient with yourself. You didn’t create your current situation in a day, month, or even a year. It will take you time to clean up the accumulated debt. But you can do it!

Remember: The only way to eat an elephant is one bite at a time.

What will you create in 2014?

Happy New Year!

*Note* ~ The above financial information for Jessica is based on averages taken from national statistics for average household debt:

* Average Student Loan Debt: $29,400 rounded to $30,000 @ 6.8% for 10 yrs

* Average Credit Card Debt: $16,000 @ 13% for 7 yrs

* Average car price: $31,000 rounded to $30,000 @ 4% for 5 yrs

* Average rent: $1,200 (some markets maybe as much as 3X this!)

* Income is based on $45,000 per year paid bi-weekly net of federal taxes

* Just for funnzies a yearly income of $35,000 per year paid bi-weekly net of federal taxes would be approximately $2,200 ~ Jessica would be in the hole by almost $500 per month before accounting for all her monthly expenses. YIKES!

Step 2: Develop your Skills ~ The Wealthy Living Workbook

Visit Bankrate.com to preform personalized calculations for specific financial items. In the drop down menu under each tab on Bankrate.com is a category titled ‘CALCULATORS’. Click on ‘CALCULATORS’ and you will find a menu of items. You can calculate anything from your take home pay after taxes, to car payments, to credit card payments that will pay debt off faster. GREAT TOOL!