This article looks at the steps to creating a financial plan for people of all ages. There are links to additional resources at the end of the article as well as in the body.

The Financial Plan For You

Create Your Own Financial Plan In 4 Steps

4 Steps To The Financial Plan That Will Fit Your Entire Life

Americans are increasingly worried about their finances. An article written in Business Insider ( see Resources for link) came up with the following conclusions:
•    A large portions of US citizens reported that their income regularly doesn’t meet or just covers their monthly expenses.
•    Forty six percent of those in the US could not cover an unexpected expense of $400
This worry comes from a lack of knowledge. Studies have shown that most Americans, 61%, remain ill- informed about their personal finances. In many ways people, just don’t even know where to start. Here are the 4 steps in the financial plan we believe can be used throughout your life:


1.    Risk Management First
2.    Save At The Proper Rate And In The Right Places
3.    Prepare For The Unexpected Liquidity Is King
4.    Enjoy A Debt Free Life
Let’s examine each of these steps in further detail.

I.    Risk Management First

In the business world, risk management is something that every successful business owner knows about. For individuals, risk management simply means protecting the things that you can least afford to lose. This is usually accomplished with:
1.    Insurance
2.    Safe and liquid investments
3.    Legal documents
Lawsuits, natural disasters, accidents, illness and death are some of the unexpected events that can derail your retirement, college and life plans in general if you aren’t properly protected.


II.    Save At The Proper Rate And In The Right Places

The average savings rate in the US has been around 5% for the past few years. This is far too low a savings rate to accomplish any meaningful goals. A savings rate of 15% to 20% will help you accomplish your goals in much more meaningful way. Working towards a higher savings rate is better than chasing a higher rate of return. Here are some examples of how that is true:

Example 1:
Annual Income $120,000
Annual Income Increase 2%
Annual After Tax Rate Of Return 7%
Savings Rate 5%
Value of Account at Age 65 $744,835
Amount of wealth that was spent on taxes, debt, lifestyle etc. $14,151,860. That is a LARGE amount of money that was used inefficiently.

Saving 5% isn’t going to get you where you want to to










Now let’s look at the impact of a higher savings rate:
Example 2:
Annual Income $120,000
Annual Income Increase 2%
Annual After Tax Rate Of Return 4%
Savings Rate 15%
Value of Account at Age 65 $1,340,386


Saving a rate of 15 percent beats saving 5 percent even with a higher rate of return


This is an increase of $595,551 even though we have dropped the after-tax rate of return by 3%! It is also much more likely that you will achieve a long-term investment rate of return of 4% rather than 7%. Especially considering the most recent Dalbar study which shows that the average investor earns less than 3%.


III.    Prepare For The Unexpected Liquidity Is King

Life doesn’t always run in a straight line. Therefore, calculations that assume a linear rate of return without any hiccups or problems is destined to fail. When you can have 6 months to 1 year of your gross income liquid than you are in a much better position. Some advisors will say that if you have credit amounting to that much you are in good shape, we disagree. Still the elimination of debt should not proceed the prior steps. We think that putting yourself and family in front of the mortgage company or bank is your best move.


IV.    Enjoy A Debt Free Life

We place being debt free after all the other steps because while important, it is not necessarily urgent. This is because being debt free is of no use if handling emergencies means you must go back into debt.
We hope that you find this article and others like it interesting and helpful. Make sure and check back often for additional information to help you on your way to planning your retirement. We also offer the ability to start by creating your own wealth potential and retirement numbers.

Just contact us for additional information.



Business Insider: The State Of The US Consumer

Washington Post: Are You The 61%