Oran Hall, Sunday Business Columnist

To realise goals such as educating your children or yourself, buying a home, having a comfortable retirement, or covering your daily living expenses, craft and use a financial plan this year.

It should clearly state your goals, when you want to realise them, and their projected cost.

Determine how much to save and, if you plan to borrow, what portion of the cost you will fund with debt and the likely cost. Use debt wisely. Do periodic evaluations of your progress.

To begin, know where you are financially. Start by determining your net worth - the excess of your assets over your liabilities.

Ultimately, you want your net worth to grow consistently. List your liquid assets such as cash, current or chequing account balances and savings accounts balances, money owed to you, and other assets you can readily convert to cash. State their value.

List your investment assets such as stocks, unit trust and mutual fund investments and real estate held for investment. Again, state their value.

These long-term investments drive your net worth but fluctuate in value. List your share of any business you own under business assets.

Identify and list the value of your personal assets - your furniture, home, appliances, motor vehicle. These are primarily for your long-term comfort, convenience and enjoyment, not income.

Aim ultimately to have more investment assets than personal assets.

List your short-term liabilities such as personal loans for consumer and household items, credit card balances and loans taken against the value of your life insurance policy. Record your long-term, liabilities including money borrowed to purchase your home, investment assets, personal assets that will last a long time, and to fund education.

Your liquid assets should be more than your short-term liabilities and, overall, your assets should be more than your liabilities. Take corrective action where these unfavourable conditions exist.

Next, create your budget, or cash flow statement. It is the key to realising your goals. You must know where your money is coming from and where it is going if you are to maintain control over your life and enjoy financial independence. If you cast a good budget and stick to it, your chances of attaining your goals will be greatly enhanced.

If you have never crafted a budget before, refer to your pay slips, investment income statements, other records of income, and to credit card statements, cheque stubs, and receipts over the previous year or two, to help you project your income and expenses respectively for the current year.

employment main source of income

Employment is the most common and reliable source of income, whether you work for another person or yourself. Investment income, gifts such as remittances, and profits from business are other sources. Record accurately and be able to account for all income.

If you receive income irregularly or in unpredictable amounts, as is common for sales persons, determine how much it costs to maintain your basic life style and save earnings over that amount to supplement your income when it is less than programmed expenditure.

On the expenditure side, pay yourself first by setting aside funds to save. Pay your creditors, provide for food, shelter, clothing, health, education, transportation, family and asset protection through insurance. Remember to allocate an amount for gifts, and for your 'offerings' if you are a person of faith.

Represent related expenditure as a group. Include all expenses related to your car under transportation, for example. This will help you to see how items affect your budget individually and collectively.

To avoid financial stress from periodic payments such as school fees and motor vehicle insurance, deposit a portion of the expected payment to an interest-bearing account each month until it is required.

Keep accurate records to be able to determine if income and expenses vary from target, for these variances must be managed if your financial plan is to remain on track.

To increase income, invest in higher-yielding instruments without being reckless. Do for yourself more of the things you can do, make the best use of the 'fringe benefits' of your job, and enhance your earning power by learning new skills. Earn income from your hobbies where possible. To control spending, use cash more, make a shopping list and stick to it, ensure that you spend less on the less important items, eat out less, cut out waste.

Your budget will help you to generate savings for the investments you must make to grow your net worth and realise your goals. Make this your priority this year.

Oran A. Hall offers free advice on personal finance and money management. For free advice, write to him at finplan@cwjamaica.com