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Financial Plan

In creating a financial plan, it is important to consider two underlying principles. Don’t waste money and learn to save money. Easy but look around you, people struggle with these simple practices. You should be focus on growing stronger. The more you build now, the easier and quicker it will get.

What are your goals?  What are you building for?   Here are some examples: car, home, retirement, college, vacation etc.   Write them on a paper.

It will be important to be SMART.  What do we mean by smart?  Your goals should be Specific, Measurable, Attainable, Realistic, and Time-Bound. 

Specific- Being debt free is too broad, paying off a high interest loan is specific.

Measurable- Paying an extra $200 on a loan a month is measurable.

Attainable- Do you have the income?  Can you do it with self-discipline?

Realistic- Is this realistic?  Can I really retire today?

Time-Bound- Put a time frame.  18 months to put a deadline out there.

The methods of SMART goal planning will help you create realistic and achievable goals.

1st Step- Take inventory of your situation.

Look at your situation.  We are all in different phases of life, income, and circumstances.  We will look at these in the next steps.  Gather your details.   Like investing, you must understand your company/investment.  In this case, that is you.  You must look at your net worth, income, and expenses.  What is your financial value?  What is monthly income?  Did you get a severance? This should be a net number for each month.  You will want to look at it per pay period but build it out for 6 months.  A spreadsheet is good to use as it always you to do calculations.  Software is good but you can start simply at first.  Gather your monthly expenses and planned expenses.  We will go through these next.

Templates of a Budget

2nd Step- What is your net worth.

This is a simple process that most people never do.  Understanding your value can be very rewarding or humbling.  Regardless, you need to understand where you are to improve.  Your financial new worth is basically your assets-liabilities.  List all your assets and liabilities.  With liabilities, add your interest rate (we will use it later) It will be easier to use a spreadsheet, but a piece of paper will work also.  Here is an example.

Let’s take a look at Fiscal Bill’s Balance Sheet and Net Worth.

Car43,000Car Loan-8.935,600
401k59,000Credit card #1 – 20.996,532
IRA’s15,256Credit card #2 – 26.991,986
Checking4,000401k loan-5.2516,357
Savings3,500Student Loan- 6.965,320
Investments4,836Bank loan- 9.9912,000
Personal Assets3,000 
Total Assets497,592Total Liabilities486,795
Net Worth=Total Assets- Total Liabilities10,797

If you have a positive- congrats your net worth is positive.  If it is negative, you owe more than you have.  Regardless, the goal is to improve the number.  The higher the positive, the more wealth you have. 

Templates of a Balance Sheet

3rd Step- What is your income and expense?

In this step, we look at your inflows and outflows.  This is where budgeting starts to play a role.  Again, we will be using a spreadsheet. Templates of a Budget(Income Statement)

Fiscal Bill’s Income Statement

Net Income InflowExpensesOutflow
Job 14,580Mortgage2,394
Job 22,291Car Loan-8.9399
 Credit card #1 – 20.99150
 Credit card #2 – 26.9950
 Student Loan- 6.9399
 Bank loan- 9.99300
Total Income6,871Total Expenses5,672
Surplus/Deficit  1,199
  1. Debt Awareness
    • Look at the credit cards.
      • What are your interest rates?  You need to pay off the higher rates ASAP.  An interest rate of 18.99 on 10000 will = be 1899 a year for doing nothing!  That is about 159 a month.  Can you transfer a balance (be careful of transfer fees). Focus on paying down highest rates first.
    • Look at all loans. (Understand highest rates and terms)
      • Do you have the best interest rates on cars, homes, etc.  that you can get?  Your situation could make it difficult but worth looking into it. Focus on paying down highest rates first.
  2. Review Expenses
    • Look at recurring fees…
      • Look again at your credit cards, bank account, cable, etc. Do you have any subscriptions you don’t use or can get rid of?  For example…online subscriptions, streaming services, and cable packages?  How often do you really watch HBO or Netflix?
    • Look at insurance…
      • If you have a good record, maybe raise the deductible. Maybe look at a different provider.
  3. Continue to focus on getting out of debt. 
    • Only your mortgage is acceptable if you have a cheap rate because it is tax deductible.   0% promotional rates are ok but watch the details.  If you are late, you might get jacked up to a higher rate on a portion or all the original balance.  Make sure it is paid off before the end of the promotion.
  4. Control the spending.  Do you really need to buy the purse or rounds for the gang at the bar. 
    • By controlling spending, you will see the size of savings grow quickly.  It will become a passion.
  5. Max out retirement accounts.
    • You need to max out retirement funds if possible but do contribute something.  Get an emergency fund, don’t invest in the market until you have 3-6 months in emergency funds.  Make your savings a bill that you can skip.  You must pay yourself every month.
  6. Declutter and give things to Goodwill/Salvation Army
    • This will be good for the mental health but will also help at tax time.  You have the time do something now to benefit.
    • This is also good practice to get rid of bad investments. No need to hold onto anything that doesn’t serve a purpose. You want to live a simple clutter free life. It pertains to investments, stuff, and etc.
  7. Start Investing (Savings/Investing) is an expense because you are paying yourself).
    • Start a IRA and find a good brokerage firm, eTrade, Fidelity, Interactive Brokers and Robbinhood are a few.  Start with a market index (S&P, Growth, Value) ETF or fund until you have $10-20k in it.  We will get to stocks/bonds in future posts.  Fund the college fund to get the tax advantage plus it will save a headache later.

4th Step-

Continue to build your budget and your plan.  Write down the plan and your goal.  Plan your goals based on the above needs.  It should be good guideline to start moving to being a Fiscal Investor.  Stick to the plan and when you stray, get back to it ASAP.

Final Thought!  As I said earlier, the more you build now, the easier and quicker it will get. Please review the concept of Loving Compound Interest! As Einstein once said, “Compound interest is the eighth wonder of the world.” One of the smartest in the history of the world recognized this simple idea. Quantum theory, existence of atoms, theory of relativity…. I am lost! Making money I understand. It doesn’t take a genius for understanding Compound Interest!

In the future, Fiscal Investor will be providing tools to assist in the process. Sign up now for the notification list and weekly email on becoming a Fiscal Investor!