Are We There Yet?

For investors, the year 2009 came in above the long-term historical averages; hard to believe given how low we went on March 9^th.  A more important question for investors to as is “Are We There Yet?”  What progress did you make toward your long-term financial goals? While investment performance is important, long-term financial success depends on a lot more than what "the market" does from year to year. Below, we'll walk through a couple key steps to help you get a handle on just how you're doing vis-à-vis the market and your financial goals.

Assess your personal net worth

Take a look at the bigger—and more important—picture by updating your personal net worth statement. Businesses do this with their balance sheet at the end of the year. To start, total up all your assets (what you own, including your investment accounts, your home, etc.) and all your liabilities (what you owe). Then complete the picture with a statement of personal cash flows—all sources of income minus expenses. If you use Mint.com, like I suggest to my clients, this step is a breeze. It does it for you and best of all, it’s FREE.

If you did all this for 2008, you can compare how your finances performed since last year. Did your bottom-line net worth increase in 2009? How / why did that happen? For a lot of us, 2009 was “don’t loose ground” type year. With financial statements in hand, you can see what portion came from the return on your portfolio vs. other factors, such as changes in income, the value of your home, paying off debt, and so on.

This is also an opportunity to see if you stayed on track with your savings goals in 2009. Did you max out your 401(k) or other employer retirement plan? Did you still have positive overall cash flow after all your essential expenses, including taxes? If so, how much of that money did you spend instead of save?

Remember, the amount you save is critical to achieving your long-term goals and growing your personal net worth over time. That's why it's smart to budget in your savings target as a non-discretionary line item on your cash-flow statement.

Make or update your plan

Measuring progress toward your goals is difficult, if not impossible, when you don't have a plan. Putting one in place involves assessing your current situation, identifying your goals—retirement, college and so on—then formulating a savings and investment plan to help you reach them, as well as a distribution plan to fulfill your goals. Of course, no matter how good your plan is, it won't be of much help unless you take action.

A sound plan, properly implemented and monitored along the way, can help you achieve the ultimate goal—peace of mind—as you find the right balance between working toward your future goals, including a secure retirement, and enjoying the here and now.

The discipline of planning

Remember, measuring progress toward your goals involves much more than simply focusing on the performance of your investments. It's a comprehensive look at your spending and saving habits, debt management, tax & estate planning, gifting and more—all within the context of the economic, financial and market environment. Remember, too, planning is not a one-time event, but an ongoing, lifelong discipline.  We’re here to help.

For more articles like this, check out Schwab.com.