3 steps to accomplish financial goals

Source :Ray Martin :CBS money watch :January 9, 2012 12:53 PM

Most folks want to improve their finances and think about setting financial goals. But as the saying goes, most people don't plan to fail, they simply fail to plan. As a result, they don't accomplish their financial goals.

Whatever your financial goals, if you want to achieve them, follow these three simple but important steps:

Prioritize goals: Set out to first accomplish the goals that will provide the most financial benefit and free up cash flow that can be used to accomplish your other goals. For example, use extra cash savings and income to pay down credit card debt. When the credit card debt is paid off, use the money from credit card payments towards building up an emergency fund, saving for a car or a down payment on a house or buying affordable life insurance.

Put the plan in writing: The saying "plan your work and work your plan" was tailor made to apply to financial goals. Any goal that's not written down is less likely to be achieved. The key to attaining your goals is to keep them realistic and write down a specific plan of action. For each goal, write a summary of WHAT you want to do, WHY you want to do it, WHEN you will get it done and HOW you will get it done.

When you make a written financial plan, think about the most effective way to accomplish your goal. For example, the key to paying off debts in the shortest time is to know which debt costs you the most. Make a list of your debts and sort it from highest to lowest annual interest rate. The debt with the highest interest rate should be paid off first. It is typically best to use any savings you have to pay down this debt first. Why? Typically your savings is earning less interest than the interest charged by the creditor. After the debt is paid off, you can use the cash flow that was used towards the debt payments to build up your savings again.

Also create a plan that allows for several ways to accomplish your goals. For example, the money to pay off debt can come from increasing your income, reducing expenses, selling some stuff, or a combination of all three. Finally, the key to a good plan is to Keep It Short & Specific (the KISS principle).

Create action steps: Create action steps for each goal, with each step being something that can be accomplished quickly. For example, if you want to get your estate plan in order, the first step is to review and update beneficiary designations on your retirement accounts and life insurance policies. The next step would be to outline to whom you want your assets distributed and who would be your representatives, executor and guardians in your will. Finally, select and meet with a competent lawyer to help prepare and finalize the documents you need. The key is to make continuous progress on the steps towards your goals and to seek help to keep you from getting bogged down.