Steps of a Financial Plan
Keri and Haylie
It is a process of setting goals, developing a plan to achieve them, and putting the plan into action.
The first step in planning this, is establishing net worth.
- Net worth = Assets - Liabilities
The second step is establishing income.
- Income is money received, especially on a regular basis.
The third step is identifying expenses.
- Estimate how much money you are spending each month.
The fourth step is considering the impact of taxes
- The more money you make, the higher the share of your income you will pay in income taxes.
Liquid assets can easily be turned into cash.
A good financial plan will help manage your liquidity so that you don't get caput off guard by an unexpected expense.
Credit can increase liquidity, but it could also be very costly.
Some great purchases could result in borrowing money for long periods of time.
Long-term financing is usually available at a lower cost to a borrower with credit cards.
Payment terms include specific information about the interest rate the lender will charge you, and the time period for paying back the money borrowed.
Invest with the expectation of earning more money.
- Riskier investments can produce greater returns, and may experience great losses.
People who started planning for retirement early, usually retire at an early age.
By determining how much to save for retirement every year and how to invest that money, you could start planning.