Are You On Track?

are-you-on-trackOver the last month I’ve had several conversations with folks about the uneasiness they have about their financial future. Their concerns seem to stem from one BIG QUESTION:

Am I on track to reach my retirement goal….or as I like to say, Financial Life Goal (FLG)?

I spent over five years honing an answer to this question in a little over one hundred pages in Common Sense to Uncommon Wealth. So I thought, could I whittle one hundred pages into one blog? As the little train said, I think I can, I think I can, I think I can. So I did.

 

Let me take you on a short financial journey using my Wealth Builder 10 Steps using Joe and Judy as an example. This journey requires you to continually ask and answer three smaller, yet powerful questions to arrive at a simple calculation that answers the BIG Question: Am I on track to reach my FLG?

Question 1-What’s your Financial Life Goal? First things first. Before you can determine if you are on track to reach your FLG you have to declare it. By establishing your FLG, you establish the target. Establish the target and then in Question 2 and 3 you can determine if it’s obtainable.

Joe and Judy’s FLG: We plan to retire in 30 years at age 65 with $1,500,000 (WB10-Step 5)
What’s Your FLG? ____________________________________________________________

Question 2-What’s your FLG starting point? What funds (i.e. 401k, IRAs, Roth acct, etc.) do you have available right now to invest towards your FLG? My Wealth Snapshot is a great tool to help you discover your FLG starting point as well assess your overall financial health.

Joe and Judy’s FLG Starting Point is $50,000 (WB10-Step 6)
What’s Your FLG starting point? ___________________

Question 3- This is a two part question that can be calculated from any personal profit statement or my Business Profit Report form (WB10-Step 7).

a. Monthly how much profit/savings can you invest towards your FLG? In other words, after all the bills are paid, debts are retired and your emergency fund is funded, how much can you invest towards your FLG?

Joe and Judy’s monthly profits are $600 (WB10-Step 7)
How much can you invest? __________

b. What are your annual living expenses? How much does it cost to run your household for a year? The Business Profit Report gives the monthly cost breakdown which can be used to calculate the twelve month total.

Joe and Judy’s annual living expenses are $82,800 (WB10-Step 7)
How much are your annual living expenses? ______

Now you are ready to answer the BIG Question using my FLG Calculator: Are You on Track? Plug in the information you obtained from the questions above into the FLG Calculator. Based on your information the FLG Calculator will determine your projected withdrawal rate. If your projected withdrawal falls between 4 to 6% or lower, You Are On Track. Take a look at Joe and Judy’s example:

joeandjudyexampleexert

As you can see, the calculator determined that Joe and Judy would be withdrawing 3.8% of their total investments at retirement. They’re On Track.

How about you? Are you on track?  If you are, great.  If you aren’t, ask yourself two basic questions:

Do I change my FLG to match my financial behavior?
Or……
Do I change my financial behavior to achieve my FLG?

It’s been my experience that most people need to change their financial behavior in order to reach their Financial Life Goal.

If I can help in anyway let me know.