Once you accept these facts, you are ready to get down to the nitty–gritty of financial planning. One of the best methods we know for starting a plan is to follow the step–by–step process outlined below. Use the worksheets to organize your information then you can transfer the information to your computer for easy access. You can also find fillable PDFs of
After completing this list, subtract your total liabilities from your total assets. This will indicate your “Net Worth.” Many people are surprised to find they have a net worth much higher than they imagined. This list should prove to you that you do have an estate. This is the amount (your net worth) that financial planning is designed to increase and protect. The balance sheet also provides a very convenient measuring device for comparison against future balance sheets so that you can determine the success of your financial planning efforts. STEP NUMBER 4 — FAMILY BUDGET The next step in the financial planning process is to develop an operating budget — a plan which itemizes your income and expenses. Your budget can be prepared for any length of time. It is usually best to start with a one–month period. Then, once you feel comfortable with the process, you can develop a budget covering three months. Ultimately, you should prepare an annual budget that is broken into twelve monthly segments. You can start your budget using the worksheets at the end of this chapter. The following list of income and expense items will help you begin the process. However, do not forget to include other items that are unique to your situation. There are many different budget software programs you can use to help keep you on track. Items Of Income a. Your monthly employment income (take home salary, wages, etc.). If you have additional income which tends to fluctuate (i.e. commissions, tips, etc.), your estimates should be fairly conservative. Amounts earned over the conservative estimate can be handled later. b. Your spouse’s earnings, using the same guidelines as above. c. Income earned by your dependents which is contributed to the family’s general funds. d. Income to be received from savings accounts, dividends, bonds, and other investment items. e. Income from all other sources such as VA pensions or benefits, social security assistance payments and annuity payments. Fixed Items of Expense a. A cardinal rule of personal financial management is “pay yourself first.” Regardless of how small the amount, a regular savings program is essential for the success of your financial plan.
all the worksheets at www.afba . com . STEP NUMBER 1 — PERSONAL DATA
Use the Personal Data worksheet to develop a simple list outlining personal information on you and your family members. It has space for recording such items as names, ages, dates and places of birth, social security numbers, dates and places of military service, employment information, present address if not living at home, as well as any other personal data which comes to mind. This first step accomplishes two basic objectives. It gets you started with familiar information and it provides a reference
point for someone else to settle your estate. STEP NUMBER 2 — IMPORTANT PEOPLE
Use the Important People worksheet to develop a record of people having an important role in your personal affairs. This should include your doctor, lawyer, minister, insurance agent, stockbroker and guardians for your children. Again, the purpose is to document basic information for reference purposes. STEP NUMBER 3 — FAMILY BALANCE SHEET Using the Family Balance Sheet, prepare a family balance sheet listing the value of items you own (assets) and the amounts owed to others (liabilities). Some of these values will be easy to determine, such as cash in the bank or balance of a loan, while others will require a degree of educated guessing, such as the value of your home and furniture. The following list will help with this process. Assets: Cash in checking and savings accounts. Cash value of life insurance policies. Cash value of any savings bonds.
Market value of stocks, bonds, mutual funds, etc. Market value of your home and other real estate. Market value of cars, boats, campers, etc.
Market value of jewelry, furs, art, etc. Market value of furniture and appliances. Market value of other major assets. Liabilities: Automobile, furniture, and other personal loans. Balance of the mortgage payable on your home. Amounts owed on charge and credit cards.
Amounts owed on any bank or insurance loans. Property taxes owed if you pay them separately. Income taxes owed if you pay them separately. Any other liabilities or amounts owed.
CHAPTER 8: PRINCIPLES OF FINANCIAL PLANNING
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