Financial Planning

The 6 steps for a financial plan & how it can work for you!

1st step: Creating a budget

Creating a budget involves 4 steps.


1) Determining Your Net Worth

- Net Worth= assets - Liabilities

2) Establishing Your Income

- Income is defined as money coming in through wages earned, allowance, or other sources

- Your income often depends on decisions you make about education or career choice

3) Identifying Your Expenses

- You will need to have accurate estimates on your expenses to to determine how much you can save

4) Considering the Impacts of Taxes

- Income Taxes, money owed to government on earned income

- Generally the more money you make the higher your income taxes will be

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2nd Step: Manage Your Liquid Assets

- Liquid assets include cash and assets that can be quickly and easily turned into cash

- Money management involves making decisions about how much cash or liquid assets to keep in reserved how much to invest in liquid assets

- Credit mangament involves making decisions about getting credit and using credit

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3rd Step: Manage Your Borrowing

- Major purchasing can be difficult, so the easiest step to take is to take out a loan for, or finance, the amount that you cannot pay.

- Payment terms include the specific information about the interest rate the lender will charge you and the time period for paying back the loan.

- REMEMBER! Lenders make their money by charging you rent (interest) on the money they loan you

4th Step: Protecting Your Assets

- You will need insurance for all of your assets to protect them from anything bad

- Car insurance, House insurance, Health insurance

- Managing you risk and preventing loss through insurance is key to long-term financial security

- With car insurance you will have two options

- Full Coverage, protecting another persons car and yours

- Liability, only protecting the other person's car

- You also need to have Health insurance for unexpected events such as illness or injury

5th Step: Investing

- Any funds that you do not spend should be invested with the expectation of earning even more money

- Common types include stocks, bonds, mutual funds, and real estate

- Riskier investments can produce great returns, but they also may face significant losses

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6th Step: Retirement

- People who retire early are often the people who began planning for retirement while they were young

- It involves determining how much to save for retirement each year and how to invest that money

- The government provides several ways to save for retirement that allow you to accumulate wealth without paying taxes until you retire