Steps for a personal finance plan

Kailey Hull

Personal Financial Plan

· It involves specifying financial goals including the spending, financing, and investing plans needed to reach a goal.

- A good financial plan is like a blueprint for a builder

· The plan should spell out every aspect of how to accumulate and grow wealth and provide for emergencies.

Creating a budget for yourself

Set your goals

· Make a list of all the financial goals you want to accomplish over the short and long term.

· Ask yourself basic questions:

- How are you planning to achieve them

- How quickly you need to see results

Know your net income

· The first step in creating a budget is to identify the money you have coming in, otherwise known as your income.

· Remember to subtract your employer deductions for Social Security, taxes, 401(k) and flexible spending account allocations when creating a budget worksheet. Your final take-home pay is called net income and that is the number you should use when creating a budget.

Make your plan

· Start by dividing your net income into 2 broad spending categories: fixed expenses and variable expenses.

- Some of your expenses, such as your mortgage, are fixed because they stay the same each month. Other expenses, such as entertainment or gas for your car, are variables that change from month to month.

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Manage your liquid assets

Liquid assets—cash and investments that can easily be converted into cash.

• Without liquid funds, you might have to compromise your long-term investments to cover unexpected expenses.

• You could ruin your financial plan if you don’t manage liquid funds effectively.

Cash management—the management of cash and near cash (liquid) assets.

• Cash management alternatives

- Checking accounts

- Saving accounts

- Savings bonds

Money management – Involves making decisions about how much cash or liquid assets to keep in reserve and how much to invest in less liquid assets, such as real estate

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Protecting your assets

· Come up with a plan to protect assets as you accumulate them

Purchase insurance:

· Insurance planning is a component of your financial plan

- It determines the types and amounts of insurance you need

- People usually insure houses, cars, boats, and other major assets

- You also need insurance to cover you for unexpected emergencies

Life insurance:

· Many adults have life insurance that will provide a cash amount in the event of their deaths

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· Any funds you do not spend should be invested

- Common types of investments:

Ø Stocks

Ø Bonds

Ø Mutual funds

Ø Real Estate

· Risker investments can produce great returns – but also may experience significant losses.

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Retirement planning involves determining how much to save for retirement and how to invest

· People who save for retirement young often retire early

· The government provides many different ways to save for retirement that will allow you to accumulate wealth without paying taxes until you retire

- What age would you like to retire?

- Do you know anyone who retired young and now does exactly what he/she wants to do?

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