Financial Planning
The 6 steps for a financial plan & how it can work for you!
1st step: Creating a budget
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
2nd Step: Manage Your Liquid Assets
- 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
3rd Step: Manage Your Borrowing
- 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
- 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
- Common types include stocks, bonds, mutual funds, and real estate
- Riskier investments can produce great returns, but they also may face significant losses
6th Step: Retirement
- 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