If you want your financial story to be a good one, learn from the craft of the storyteller: don't start writing until you've figured out the whole plot.

There are three aspects of financial "plotting" that you need to focus on:

Your goals

How you divide up your investments to pursue those goals

The role of diversification in pursuing those goals.

Money has been called the universal solvent, because it seems to solve all problems. Hmmm... not quite.

It is true that goals, especially big, life-defining ones, depend on having enough of it at the right time. Money can't buy you love, as The Beatles pointed out, but it can buy you opportunity. So ask yourself what you hope to achieve in the next five, 10, 20, 40 years. Start an emergency fund? Get better disability or life insurance? Go back to school? Put a down payment on a new house? Change careers? Get married? Send your kid to college? Travel to Africa? Retire early? All of the above? Just how expensive do you plan to be?

What Do You Have?

And now compare the future dream with the current reality. First, you need to get a handle on what you've already got. Estimate both your net worth and your net income/expenses. Your net worth, what accountants call a balance sheet, compares your assets (what you own) with your liabilities (what you owe). It's a snapshot of your financial condition at a specific time. Your net income/expenses helps you see your monthly disposable income - the income you have left over after paying all necessary expenses. And that tells you how much you can afford to contribute to your financial goals each month....

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