What Is a Financial Plan?

A financial plan is a document including a person’s current money situation and long-term monetary goals, in addition to strategies to accomplish those goals. A financial plan starts with a detailed evaluation of the individual’s current financial state and future expectations and may be created independently or with the help of a licensed financial planner.

Understanding the Financial Plan

Whether you’re going it alone or with a financial planner, the first step in creating a financial plan is collecting a lot of pieces of paper– or, most likely these days, cutting and pasting numbers from various web-based accounts into a document or spreadsheet.

You may complete the following steps as an individual or a couple:

Calculating net worth

To determine your current net worth, list all of the following:

Your assets: This may include a home and a car, some money in the bank, money invested in a 401( k) plan, and anything else of value that you possess.

Your liabilities: These can consist of credit card debt, student debt, an outstanding mortgage, as well as a car loan. Sometimes, you may have access to a grace period or moratorium.

The formula for your current net worth is your total assets minus your total liabilities.

Identifying cash flow

You can not create a financial plan without knowing where your money is going– and when. Recording transactions– the flow of cash in and out– will help you determine how much you need every month for necessities, how much might be left for saving and investing, and also where you can cut back a little– or a lot.

One way to get this done is to skim through your checking account and credit card statements. Collectively, they should present a relatively complete history of your spending.

If your expenses differ a great deal seasonally, then it’s best to go through an entire year– counting up all the expenditures in each category and then dividing by 12 to get an average monthly estimate of your spending. This way, you will not underestimate or overestimate what you spend on utilities, nor will you neglect to take into account holiday gifts or a vacation.

Document how much you’ve paid over a year in basic housing expenses like rent or mortgage payments, utilities, credit card interest, and even home furnishings. Include categories for food, clothing, transportation, medical insurance, and non-covered medical costs, then document separately your actual spending on entertainment, dining out, and vacation travel.

As you look over your own financial records, your personal spending categories will stand out. You may have an expensive hobby or a pampered pet. Document the costs.

When you add up all these numbers for a year and then divide by 12, you’ll know exactly what your cash flow has been.

Considering your priorities

The core of a financial plan is an individual’s clearly defined goals. These may include funding a college education for the kids, purchasing a larger home, starting a business, retiring on time, or leaving a legacy.

No one can tell you how to prioritize these goals. However, a qualified financial planner might be able to help you choose a detailed savings plan and specific investments that will help you tick them off, one at a time.

Special Considerations of a Financial Plan

Financial plans don’t have a fixed format. A certified financial planner will be able to design one that fits you and your expectations. Once complete, it may motivate you to make changes in the short term that will help ensure a smooth transition through life’s financial phases.

The following aspects should be addressed and revised as needed:

  • Retirement strategy: Regardless of what your priorities are, the plan should include a strategy for collecting the retirement income that you need.
  • Thorough risk management plan: This consists of a review of life and disability insurance, personal liability coverage, property and casualty coverage, and catastrophic coverage.
  • Long-term investment plan: A customized plan based on specific investment goals and a personal risk tolerance profile.
  • Tax reduction strategy: A strategy for minimizing taxes on personal income to the extent allowed by the tax code.
  • Estate plan: Arrangements for the benefit and protection of your beneficiaries.

What is the Purpose of a Financial Plan?

A financial plan is made to help you make the best use of your money and achieve long-term financial goals, whether they are sending your children to college, purchasing a bigger home, leaving a legacy, or enjoying a comfortable retirement.

All of that being said, with Mission First Capital, you can start your first investment journey alongside other military members and veterans! If you have questions or would like to talk about potential partnerships or investment opportunities, don’t hesitate to reach out. Give us a call at +1 (844) 632-3863 or visit our website MissionFirstCapital.com to learn more and let’s invest today!