You should develop a plan to grow your net worth (see page 4 in the Financial Plan example). The plan segments the annual increase into four measurable pieces:
1. Savings (Gross income - [taxes & living expenses])
2. Investment gains
3. Real estate (home) appreciation
4. Debt reduction/amortization
The “levers” by which you can influence the four sections of increase are:
- Income
- Portfolio
- Fair market value of real estate
- Debt
- Savings rate
- Living expenses
You have the most control over your savings/spending rate and your debt reduction rate. While you have little control over appreciation on your home, you can influence the Return On Equity (ROE) through leverage. Real estate leverage is determined by the size and duration of your mortgage.
Many business coaches and books tell the story of a famous study of 1979 Harvard graduates (or 1953 Yale graduates). Ten years after graduation, the 3% who had written goals were earning ten times the average income of their peers who had no goals. The story is an urban myth, but verifiable research at Dominican University has confirmed the power of putting your goals into writing. You have now joined the fabled 3%. You have SMART Goals in writing. SMART stands for Specific Measurable Achievable Results in Time.
This is a critical step. The difference between dreams and goals is a written plan. Look at the four walls around you. The building first existed as an idea in someone’s mind. The blueprint was a key step for converting the dream into the solid structure you can see and touch. There’s an old saying that people don’t plan to fail, they just fail to plan.
After creating the blueprint, the next step for turning dreams into reality is massive action. Are you ready to act on your plan?
If you have questions about financial planning or implementing strategies that can help you grow your portfolio to your retirement level, please visit www.planandact.com and start by taking your Free Financial Assessment today.