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What is a Financial Plan?

• Without a plan you may wander from purchase to purchase, not knowing if it helps you or takes you off track.

• You see this every day in people who buy too much home, finance cars they shouldn’t buy, or spend money in frivolous ways.

• It’s only too much or frivolous if it’s at the expense of their financial future. Without a plan, how does one know if they are living their best life or short changing their future?

• Your plan helps you stay engaged with your money much like the apps that help you eat better, track exercise, and reach other important goals.

Key Components of a Financial Plan:

1. Net Worth & Cash Flow: Knowing what you own and owe (net worth) provides one way of evaluating your progress over time financially. Knowing what is your monthly free cash flow amount is also foundational to financial planning. When you determine this, you can then look at how much you can allocate to your many and sometimes conflicting goals. Some common ones:

   1. An emergency fund

   2. Paying off high interest debt

   3. Saving for future goals like a home, education, or retirement

2. Tax Planning: Know how much withholding or estimated tax payments are required so you are not either overpaying taxes or underpaying, which can mean IRS penalties or large bills due in April. Also knowing if and when to sell investments, how to recognize compensation, whether to convert to a Roth IRA, etc. are all tax decisions to be evaluated before completing.

3. Investments: Identifying what assets you will use to grow your wealth over time according to your risk tolerance and goals.

4. Insurance: Determine if you even need insurance or how much if so. This is usually life, health, and property insurances.

5. Employer Benefits & Retirement Planning: Including your employer benefits maximization, this plan component gives you confidence you’re on track for long term financial security.

6. Estate Planning: Organizing your assets and plan for their distribution according to your wishes upon your incapacity or death.

One Example:

• Plans can be hundreds of pages long and incredibly complex. They can also fit on one page. They can be personalized like the advice and solutions that make them successful.

• I prefer a one page summary like the below to start which is adequate for most of my clients.

• You know where you stand financially at all times either on your PC or mobile phone.

Why Do You Need a Financial Plan?

1. Clarity and Confidence: A financial plan brings clarity to your financial situation and provides actionable steps, reducing stress and uncertainty.

2. Goal Achievement: It keeps you focused on your priorities, helping you allocate resources effectively to meet your goals.

3. Preparedness: Life is unpredictable, and a financial plan helps you prepare for unexpected expenses and life changes.

4. Accountability: Regularly reviewing your plan helps you stay disciplined and on track.

5. Wealth Maximization: It ensures your money works harder for you through smart saving, investing, and tax strategies.

Who Should Create a Financial Plan?

• Everyone can benefit from a financial plan.

• Changes like just starting out in your career or changing jobs, planning for a family, managing mid-life expenses, or gearing up for retirement, are only a few examples.

• A financial plan can adapt to your life stage and priorities.

• Working with a financial planner can make the process simpler, provides accountability, and gives you confidence in your future.