At age 36, Taylor had three kids, a spouse, a dog, and three properties — an enviable situation to be in. And yet she didn’t feel secure. The family was overspending. They weren’t maxing out their 401(k)s, which they could do if they made a few sacrifices. They also weren’t using their bonuses and tax refunds intelligently.

Taylor was afraid because they had about $10,000 in credit card debt and only about $6,000 in savings. This would barely get them through a month if they lost their income.

Creating a Financial Plan to Prepare for a Job Loss

When Taylor was 18, both of her parents got laid off in the same year. They always taught Taylor not to trust a job and to always be prepared for a job loss. This philosophy made Taylor responsible, hardworking, and fearful. Before marriage and children, preparing for a job loss was a lot easier, but since expenses and desires had gone up, so had the debt.

Taylor knew they needed to create a better financial plan and to increase their fiscal responsibility. They had been considering sending their children to private school because other people in their circle were doing it. With their $175,000 household income, they felt rich at times and made decisions based on that illusion.

After taxes, employee benefits, and retirement contributions, they brought home about $7,500 per month. This was enough money to cover all the things they wanted to do, but they didn’t have a plan.

Getting Smarter With Money

Two financial books, a meeting with a financial adviser, and a few blogs later, Taylor had a plan that would make them “wealth-ready” — a term I use for clients who need to adjust their lifestyle to really live the life they want.

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The first step was to get the whole family onboard by creating a system that was fun and rewarding. They did this by creating a “Money Mission Statement” for the family. This describes how the family will navigate the “Money Cycle” successfully. The Money Cycle is defined as “earn, grow, protect, gift, and enjoy money.”

How to Create a Financial Plan

The next step was to create a “Prosperity Plan.” This financial plan includes a list of goals, dates, amounts, and rewards that will help the family reduce stress, increase wealth, and get closer to their ideal lifestyle. Families track their Prosperity Plan monthly by addressing the progress during a periodic “Money Day” meeting.

Tracking milestones is important because as you see your progress, you'll want to keep going.

As a family tracks their progress, paying attention to any leaky faucets or negative money patterns will help them adhere to their Money Mission Statement. If the family can commit to following certain money rules, they can reach their financial goals faster and more efficiently. The real goal is to gain the right money mindset and focus on “getting into wealth.” As the family pays down debt, their net worth increases. This is called “getting into wealth.”

In Taylor’s case, her family also had to think about their property and determine how it fitted in their overall plan. Aside from sending their kids to an expensive private school, they also wanted a new house. The family had big dreams, but they didn’t have a plan, vision, or mission to go along with the dreams.

But they soon took five important steps to seize control of their destiny:

  1. They determined that their desired income goal was $225,000. And with one spouse earning $125,000, the other earning $75,000, and the two properties earning $25,000 in rental income, they could reach it.
  2. They set a goal to save six months’ worth of expenses, at $5,500 each month (including having a bit of fun). To reach their goal, they would need $33,000.
  3. They had $2,000 of discretionary income and decided that $1,000 would go to savings; $750 to credit card payments; and $250 toward gifting. They also decided that a major portion of any future bonus checks and tax refunds would go to credit card debt and savings.
  4. They decided that the breakdown for bonus checks and tax refunds would be ”four, three, two, one.” In other words, 40 percent would go to savings, 30 percent to debt payoff, 20 percent to enjoyment, and 10 percent to gifting.
  5. And finally, they decided not to send the kids to private school and to postpone the purchase of a new home for at least four years.

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