How to Create a Financial Plan

A personal financial plan provides strategies for dealing with periods of personal hardship and helps develop a prudent economic agenda for you and/or your family.

Difficulty:

Moderate

Instructions

Things You'll Need

• Financial Calculator
• Banks
• Brokerage Accounts
• Paper And Pencils
• Personal Organizers
• Personal Financial Software

1. Divide your financial life into six categories: assets, liabilities, property and casualty risk (house, car, personal injury and so on), personal risk (life, health, disability and so on), education (for children, if applicable) and retirement.

2. Put a dollar figure to each categories.

3. Add up all assets, then add up all liabilities.

4. Subtract liabilities from assets to calculate your net worth.

5. Evaluate your lifestyle if the net worth is negative, and investigate ways to pay off debt.

6. Develop ways to build on your existing budget. If your net worth is positive, your priority will be to evaluate your lifestyle, transfer "insurable risk" (see the glossary) to insurance companies, and invest more to create more wealth.

Tips & Warnings

• Lifestyles change, so make your financial plan flexible.

• Revisit your plan at least once a year.

• Unless you have the time and inclination to do it yourself, seek qualified professional advice on matters involving taxes, business and estate planning.

• Integrate your personal values into your financial plan.

• When opportunities and challenges arise, use your financial plan as a standard against which to make decisions.

• While free seminars, workshops and course work may be helpful, don't waste your time on schemes that promise shortcuts to wealth.

• Carefully evaluate prepackaged financial plans that only require filling in dollar amounts and produce simplified solutions to complex financial issues.

• Try not to rely on family members or close relatives for professional advice, especially if they have a vested interest in your financial plan.

• Flexibility is important, but without specific goals, supporting objectives and action steps, you have no plan.