Financial Plan Write Up

Financial Plan Write Up – How are you doing financially? This is a question you should ask yourself from time to time, and it should definitely be the starting point when you decide to commit to a regular or less formal financial plan. The first step in answering this question is to collect and analyze the data of your activities

) is the difference between your assets and what you owe. Therefore, the formula for determining the value of money is:

Financial Plan Write Up

Financial Plan Write Up

. To find out whether your net worth is over or under, you can create a personal net worth statement like the one in Figure 14.6, Net Worth Statement, which we created for a fictitious student named Joe College. (Notice that we’ve included rows for items that would match other people’s financial records, but left them blank if they didn’t apply to Joe.)

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Note that we have been careful to value Joe’s assets based on their fair market value. The price you could get if you sold the property at its current price. – the price he can realize by selling now, not the price he paid or the price he can realize in the past.

Finally, note that Joe has good grades. At this point in the average college student’s life, good credit may seem like a novelty. If you have bad credit right now, it’s actually you

, but remember that the main goal of a college degree is to enter the workforce with the best opportunity to create enough wealth to change this situation.

. This is the cash flow or income statement that shows where your money is coming from and where it is going. , which shows where your money is coming from and where it should go.

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-Received income) comes from two sources: student loans and income from a part-time job. His money (cash

– Expenditures) fall into several categories: housing, food, transportation, personal hygiene and health care, recreation/entertainment, education, insurance, savings and other expenses. To know Joe

Joe was able to maintain a positive cash balance for the year ended August 31, 2012, but he only adjusted it. It’s also only in the black because of student loan debt — money that, as you’ll recall from its value, is also a long-term liability. However, we are willing to cast doubt on Joe’s case: Although he will be responsible for the high cost of education, he is willing to pay debt (and, we assume, spend money wisely) because he sees education as a one investment position. which will pay in the future.

Financial Plan Write Up

Remember that when you create a cash flow statement, you only need to record income and expenses that relate to a specific period of time, whether it’s a month, a semester, or (in Joe’s case) a year. Also, keep in mind that you need to calculate your inflows and outflows

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: You record income only when you receive money and you record expenses only when you pay money. For example, when Joe bought his computer with his credit card, he didn’t actually pay any money. However, the monthly payment on the balance of the credit card is an exit that needs to be written on his financial statement (according to the type of money – say, entertainment / recreation, food, transportation, etc.).

Because you spend more than you earn. Ultimately, your credit score and cash flow data are more important when used together. While your net worth statement tells you what you’re worth — how much wealth you have — your financial statement lets you know exactly how your spending and habits affect your wealth.

We know from Joe’s financial statements that despite his low income, he feels he can save $1,200 a year. He knows, of course, that it makes sense to save some money for emergencies (car repairs, medical supplies, etc.), but he also knows that if he saves some of his money (perhaps every week), it grows. a habit he needs if he hopes to achieve his long-term financial goals.

What is Joe’s dream? We have summarized them in Figure 14.8, Joe’s Goals, where, as you can see, we have divided them into three periods: short term (less than two years), medium (two to five years). and long term (more than five years). Although Joe is still in the early stages of his financial life, he has identified and set his goals very well. Specifically, they meet four criteria for a well-thought-out policy: They are

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.Jack R Kapoor, Les R Dlabay and Robert J Hughes, Personal Finance, 8th ed. (New York: McGraw-Hill, 2007), 81.

You are also intelligent. For example, Joe doesn’t see why he can’t pay off his car loan, credit card, and bank balance in two years. Remember that with no income other than student loans and a salary from a part-time job, Joe (rightly or wrongly) decided to use credit cards to pay for most of his personal needs (appliances, electronics, etc.) . Clearing those balances won’t be an easy task, so we give him credit (so to speak) for considering them important enough to factor into his short-term goals. After college, he would splurge and take a month off. It may not be the best from a financial perspective, but he knows this may be his only chance to travel more. He is right when he sees paying off student loans and buying a house as a long-term goal. But he may want to reconsider his decision to make retirement savings a long-term goal. We believe that he should start working as soon as he starts working full time.

After reviewing the financial statements, Joe has a better idea of ​​what money came in during the year ended August 31, 2012, and a better idea of ​​where it went than where it went. Now he can ask himself whether he is satisfied with his annual income (income) and expenditure (expenditure). If he’s like most people, he’ll want to make some changes – maybe increase his income, decrease his income, or both if possible. The first step in making these changes is to create a personal budget, a document that lists your income and expenses for the next period of time (often a year). – a document listing the sources of income and expenses for the coming year with the amount of each.

Financial Plan Write Up

Joe rearranged the numbers accordingly and developed the budget in Figure 14.9 “Joe’s Budget” for the year ending August 31, 2013. First, look at the column titled “Budget.” If all goes as planned, Joe expects to have a surplus of $1,600 at the end of the year — enough to pay off his credit card debt and leave him with an extra $400.

The Financial Planning Process

Now we can examine the two remaining columns in Joe’s budget. Joe will track his actual income and expenses during the year and enter the totals in the “Actual” column. However, like most smart people, Joe doesn’t expect his actual numbers to match the budgeted numbers. So whenever there is a difference between the amount in his Budget column and the corresponding amount in his Actual column, Joe writes the difference, whether plus or minus, as the difference between the actual amount and the budget amount. . Two types of variances occur in Joe’s budget:

Before we leave the topic of financial planning, let’s review Joe’s policy. Looking again at Figure 14.8, Joe’s Goals, reminds us that at this point in his financial life, Joe has set simple goals. For example, we know that Joe wants to buy a house, but when does he want to make that big financial move? And of course Joe wants to retire, but what kind of lifestyle does he want in retirement? Does he, like most people, expect a more or less lucrative retirement style? Can he afford both a comfortable retirement and the cost of, for example, his children’s school? As Joe and his financial situation mature, he will need to explain these goals (and a few others) in more detail.

Fast forward a decade or so when Joe’s picture of steps 2 and 3 of his financial life cycle came into sharp focus. If he hasn’t already done so, Joe is now ready to identify a primary goal that will guide him in identifying and achieving all of his other goals. See Bernard J. Winger and Ralph R. Frasca, Personal Finance: A Systematic Approach, 6th ed. (Upper Saddle River, NJ: Prentice Hall, 2003), 57–58. Let’s say Joe’s investment in a college education paid off

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