The $teps of Financial Planning
Learning the Ways of Financial Planning
Component One: Budgeting and Taxes
Budgeting is the process of forecasting future expenses and income. Creating a budget involves four steps
Establishing your net worth
Establishing your net worth
- Net worth= Assets- Liabilities
- The higher education you obtain the greater your income will be
- Example of typical expense might be clothing, groceries, car payments, and etc.
- As your income increases you will want to include taxes in your expenses
Component Two: Liquidity Mangement
Liquidity is defined as how much readily cash you have available on hand for immediate wants and needs. Money and credit management are both involved in liquidity.
Money Management- decisions about how much cash or liquid assets you keep on reserve and how to invest them.
Credit Management- decisions about getting credit and using credit
Money Management- decisions about how much cash or liquid assets you keep on reserve and how to invest them.
Credit Management- decisions about getting credit and using credit
Component Three: Personal Financing
Finance is the remaining amount. Financing is mostly used for long term borrowing. An example might be a house or cars. An example of financing is buying a 5,000$ car and only paying 1,000$ for the down payment. You can get 4,000$ worth in financing by a loan.
Component Four: Protecting your assets
As your assets accumulate you need to devise a plan to protect these assets from risk. Risk is the possibility of a financial loss. Insurance is a great way to make sure you can regain your assets.
Component Five: A Plan for Your Investing
If you have extra money outside of your liquidity then you should invest that money with the expectation of earning money. Some investments could incude stocks bonds and real estate
Component Six: A Plan for Your Retirement
Once you reach an older age you are going to want to retire. Retirment planning involves determining how much you want to save for retirement every year. The goverment also provides several ways that will help you acumulate wealth as far as retirement purposes.
Component Seven: A Plan for Communicating and Keeping Records
Communication is key. You want to communicate you financial plan with those around you so you can keep your goals in check and your plan active. You also want to keep good records which will come in later when you need to file taxes.
This Informative Newsletter was Created by:
Erick Hurtado and Jordon Edwards