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The first step in reaching your
financial goals is knowing exactly
what they are and how much money
and time you will need to
achieve them. You will need
to set short-term (3 years or less),
intermediate (4 to 6 years) and
long-term (7 years or more) goals.
While goals will differ for everyone,
most individuals should at least
consider the goals below.
Short-Term Goals
- Establish and implement a
payment schedule to eliminate
current debt.
- Establish a good credit reputation.
- Establish a disciplined savings and
investment plan.
- Create an emergency fund of 3 to
6 months of basic living expenses.
- Purchase auto, renters,
homeowners, life, health and disability
income insurance coverage.
- Prepare and execute a will and power of attorney.
Intermediate Goals
- Make the down payment on a home purchase.
- Plan for a wedding.
- Increase income for additional goals and luxuries.
- Prepare for the birth or adoption
of your child(ren).
- Provide for your advanced education.
Long-Term Goals
- Establish and work toward your retirement goals.
- Provide for your children’s college education.
- Plan for support of aging parents.
- Maintain desired standard of living over
your entire lifetime.
- Assess housing location for retirement.
Your Financial Resources
Once you have established your
financial goals, the next step
is understanding the resources you
will need to achieve them. If you
are like most individuals, your
primary resource will be your pay.
If you manage your pay well, over
time you will build net worth.
Your net worth indicates your
financial position at a particular
time and is a measure of the
progress you are making toward
your goals.
Understanding Your Pay
The amount of money you take
home each month depends on
various factors — your base pay,
federal and state income tax
deductions, Social Security
contributions and other deductions
you may authorize.
- Base pay makes up the
largest portion of what you
earn. The amount you receive
usually depends on your education,
skills and level of experience.
- Bonus pay or incentives may
also be provided for those who
have special skills, hold certain
types of positions or perform
hazardous work.
- Gross pay is the total amount
of your base pay and bonus pay
before deductions and taxes are
subtracted.
- Deductions taken from wage earners’
gross pay include:
- Federal Income Tax
Withholding (FITW).
- State Income Tax Withholding (SITW),
if applicable. State income
tax deductions vary from state to
state. Your employer’s human
resources or payroll department
can provide information about
your state’s income tax rules.
- Social Security and Medicare (FICA).
- Other deductions that you may
request such as savings or insurance
payments.
- Net income is the amount of money
you bring home after taxes and
other deductions are subtracted.
Visit the IRS Web site,
or consult a tax professional
to learn how federal income
tax rules apply to you.
Calculating Net Worth
Your net worth is the value of
what you own minus the amount of
what you owe. Use the
Personal Financial Statement to
calculate your current net worth.
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Basic Money Management
Basic Money Management
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