Sample financial plan » Assets

Phases of Financial Planning

admin — Mon, 28 Dec 2009 08:57:09 +0000

Most people want to retire with some level of financial security. We all want the peace of mind and self-dignity that comes from knowing that we are not at risk of ever becoming a burden on our families, the government or the state.

Knowing and understanding the three different phases of financial planning can act as a road map and help us prepare a good solid financial plan to improve our chances of meeting our life goals.

There are three different phases of financial planning:

The Accumulation phase The Distribution phase, and The Preservation phase

As the name implies, the first phase, the accumulation phase is the period of accumulating assets that will contribute to your wealth. This phase include your working years. First you learn to earn money, and then you determine how best to manage your money to make it grow into wealth. You can effectively do this by investing in different asset classes that will form the foundation of your wealth.

This phase provides a certain level of financial stability and most people never leave this phase their entire lifetime. However, majority of the population do not even enter this phase to begin accumulating any assets. They continually live from paycheque to paycheque without giving much thought to their financial future.

If you find your self in this phase, if you have invested in your first property (not your residential home), if you have started or purchased your first business, or purchased some stocks and shares, congratulate yourself.

Examples of common asset classes to contribute to your wealth include:

Cash (Treasury Bills, Money Markets, CDs) Bonds Stocks and shares Land and Property (real estate) Precious metals

The best advice for those in the accumulation stage is to hold onto the assets you are acquiring, and allow time to work it’s magic. Set time-bound goals for how long you intend to accumulate your assets before moving on to the next phase. Work diligently on your plan and keep your focus.

Continually learn more about the different asset classes available and diversify by investing in several classes. Different assets have different qualities and strengths, as well as risk and rewards.

Investing in several asset classes is a sound investment strategy that can significantly increase your ability to reach your investment goals faster.

The distribution stage is the period when you get to enjoy the benefits of wealth, when you get to draw down income from your assets. It is the reason for accumulating assets in the first place. After years of planning, investing and accumulating assets by the time you reach this stage your wealth is generally assured. Often by this time, your income is on autopilot to recur almost without much effort on your part. Most people can only dream about this phase.

The last phase is the preservation stage. This is the period when you plan to preserve and protect your accumulated wealth and prepare to safely transfer it to your rightful heirs.

In all three phases, there are three factors that can significantly erode the net value of your wealth. These are easily identified by the acronym PIT for:

Procrastination Inflation and Taxes

Whatever phase you are at in your financial plan, give careful thought to these three elements to reduce their threat to your net worth.

The key to reducing their threat to your wealth is to address them as soon as possible. The longer you wait, the more damaging their impact becomes. With the right investment strategy, you can enjoy your wealth, and simultaneously keep it intact.

The first most important step to financial planning is focussed asset accumulation. Start saving now to build and accumulate your wealth. Until you save, you cannot accumulate. The earlier you start planning, the sooner you will save, and the faster your assets will grow.

By: Margaret Ntifo

8 Steps to Developing Your Own Financial Plan

admin — Fri, 25 Dec 2009 23:50:20 +0000

When you decide you want to get serious about making some real money, getting on top of your credit cards, mortgage or other debts it’s time to sit down and crunch some numbers. Establish your current financial position and decide where you want to go and how you will get there, by answering some questions, and following these 8 simple steps to developing your own financial plan.

One. Work Out your Financial Position and Needs

How much do you want to invest? What is your income after expenses, will you borrow to invest? How much? What sort of return do you want or need? Do you want to invest short or long term? What will your future expenses be? How is your health? How much do you have in superannuation? How much super are you likely to have when you retire? Will this be enough?

Two. Write Down your Financial Goals

Are you investing for income now or do you want to build assets you can draw on in the future? When would you like to reach your goals? Consider a step by step approach, 1 year, 5 years, 10 years. What sort of lifestyle do you want now and in the future?

Three. Write down your preferred strategy to achieve your goals

Will you purchase property, shares or both? Will you manage your investments yourself, use a financial planner or managed fund? Will you use long or short term strategies? Will you reinvest your returns?

Four. How do you manage your income?

What do you need to live on, how much can you afford to save? Can you put money aside for an emergency? Are you in secure employment or self employed?

Five. Project your future earnings through income and investments; include these in your plan.

Will your salary rise? What is your estimated investment return, how will it be used? Will you draw on your returns regularly, for large purchases or investments?

Six. Consider the possible risks; include yourself (eg. ill health, loss of income) and how you will deal with these?

What investment risks are you prepared or inclined to take? Have you insured yourself? What insurance do you need? Have you made out a will? If you have assets dying without one could make things very difficult for your family. Do you have someone who can step in and act on your behalf if something happens to you? Take care to keep accurate, orderly and up to date records of your investments.What investment category do you fall into conservative, moderate or aggressive? Do you have a need to sleep peacefully at night or are you inclined to gamble?

Seven. Include all Expenses

What expenses will you incur if you use a financial planner or managed fund? What costs are involved if you use a stock broker or trading platform? What about property purchases and their ongoing fees? Will you allocate time &/or money towards self education.

Eight. Get Some Expert Advice before You Proceed

So you’ve outlined a plan and answered some really tough questions. Congratulations! You’re off to a great start. There are a number of avenues you can now consider to ensure the success of your plan, so before you proceed consider some professional advice. You may decide to talk to an accountant, a financial planner or stock broker, read books or undertake some study. So be informed as much as you can be and create for yourself and your family a financially secure future.

By: Teresa Vidal

Divorce Financial Planning – Help and Advice

admin — Wed, 23 Dec 2009 03:27:47 +0000

If you and your spouse have a good relationship, despite getting divorce, things are going to be so much easier for you both on the financial end. However, you should still have your own lawyer and you should know about what joint assets you have. In divorce financial planning, you should realize that both parties have rights to all assets unless otherwise spelled out in a contract signed before marriage. Even then, that contract may be null and void depending on the reason the marriage is breaking up. If these things are simple, you can come out as clean as possible.

Those that work with divorce financial planning will tell you that those that fight tooth and nail always end up losing out. What can make things is hard is when one party decides to try to hide things or remove money from joint accounts or retirement accounts. These are all important with divorce financial planning. Those things, if drastic steps are taken to hide them, can come back to bite you. You can also find that fighting indefinitely over these things is going to ruin credit and eat up said money. Keep that in mind.

If you own a home together, divorce financial planning is going to be much harder. This is even tougher when the housing market is down and out. If you have to sell the home, it could take years to do it. When the mortgage is due and one or both of the people involved have to pay rent or a new mortgage somewhere else, money is going to be tight. This can happen with cars and even vacation properties that must be sold. These are often stalling points in divorce financial planning. Try to keep an open mind. By trying to hurt your spouse, you are going to hurt yourself as well.

Talk with someone at your bank about divorce financial planning. If you have good credit when you first decide divorce is imminent, there may be things that you can do to ensure that you do not fall deeply into the hole as you go through the separation of assets. There may not be much you can do in this regard to divorce financial planning, but it never hurts to talk with someone about what is going to happen and what your options might be.

By: Peter Bassett

The Problem With Traditional Financial Planning

admin — Thu, 03 Dec 2009 21:04:47 +0000

Have you ever met with a financial planner? If you haven’t, you can expect to go through a certain process. You will be asked about your financial goals. One of your goals will likely be that you want to plan for retirement.

You will be asked about your present income. You know the answer to that one. You will be asked about your expenses. That one will be tough. Everyone underestimates their expenses because most of us have no idea what we’re really spending and what we’re spending it on.

You will be asked about your assets — what you own. You know what you own, but it will be tough to put a market value on some of it. You will be asked about your liabilities — what you owe. For most people, facing the reality of their debts is rather daunting.

You will be asked when you want to retire. I would say the average age most people give is 55 years old. I don’t know why that is, but 55 seems to be a popular number. Then the financial planner will tell you that you will need to accumulate enough money to live another 40 or 45 years after retirement. After all, if you live to 90 or 95 you don’t want to run out of money, do you?

You will also be asked about your risk tolerance so that the planner can determine what kind of annual rate of return to factor in for your investments. If you say you have a low risk tolerance, the planner will consider low-risk investments that will give you a lower rate of return. If you say you have a high risk tolerance, investments that could provide a higher rate of return will be considered. You can’t have it both ways. If you don’t take risks, you can’t get a very high rate of return on your investments.

Then all that information will be dumped into a financial planning software program. The software will print out a plan that will say you need to accumulate several million dollars by the time you’re 55 years old. Oh, and it will be exact to the penny. For example, $5,387,234.23.

You will look at the plan and you will think, “My gosh, there is no way I can do this!” You may get started doing a few things that the planner recommends. But it won’t last very long and you’ll go right back to doing things the way you’ve always done them.

So what’s wrong with the traditional financial planning process? Plenty! First of all, it’s ridiculous to try to look decades in the future to predict what’s going to be happening in your life. I don’t know about you, but I don’t know what’s going to happen tomorrow, much less decades from now.
Also, traditional financial planning doesn’t take into account what financial freedom actually is. You’re financially free when your passive income (money you don’t have to work for) equals your expenses.

So if you have no passive income right now and your expenses are $50,000 a year, and you can get a 10% return on your investments, you need to accumulate $500,000 to become financially free.
If you can get a higher return on your money, you can reduce the amount that must be accumulated. If you settle for a lesser return because you’re risk averse, you will need to accumulate more. You should also consider inflation. Of course, if you invest for inflation, it will already be factored into your investments.

Understanding financial freedom as the point where your passive income equals your expenses is a much more realistic way to look at it. Most people who are committed to being financially free can achieve their goal in a matter of a few years, not decades.

Copyright 2005

By: Larry Holmes

Financial Planning For the Elderly

admin — Wed, 25 Nov 2009 17:39:11 +0000

It’s no surprise that with age, seniors often experience increased limitations, the loss of certain abilities and that they require more assistance with the activities of daily living. It is equally unsurprising that one’s finances largely influence the types of services and long-term care available to that individual.

An experienced financial planner for the elderly can provide seniors and their families with invaluable advice on money issues and more, to help seniors find the appropriate solution to their particular situation. Some of the questions a financial planner can address include:

What type of long-term care can I afford? Will I outlive my assets? How much are my assets worth? Can I make my assets create more income to meet growing expenses? What do I sell first? What are all my options? What is the cost of selling different assets? Do I have to sell the house? Are there other financing alternatives? What impact will this have on my spouse and dependents? Is it too late to do any estate planning? What about inheritance issues?

Listening to your needs, Financial planners can assist you in understanding and evaluating your decisions, which will help you avoid confusion, frustration, major errors and family dissension. Financial decisions are more than about just money. I know from experience how difficult it is for everyone involved. Making major financial decisions can be even more daunting when you don’t have the detailed knowledge, experience, time or ability to handle them.

What are the potential impacts and benefits of making one decision over another? What are the requirements to execute such decisions?

Financial planning for the elderly begins with acknowledging and considering all present and possible future situations you might encounter. This can be very difficult as it requires both forward thinking as well as transitional realism. By transitional realism, I mean being realistic about your changing needs, and the impact of those needs on your life as well as the lives of your loved ones. When evaluating your needs, a financial planner should consider:

Personal care-do you need assistance with activities of daily living? Services-what types of long-term care services do you require? Safety-are there specific concerns regarding safety? Transportation-are there physical or financial considerations? Priorities-what are your limitations and desires? Interpersonal relationships-how will financial decisions affect your loved ones?

Assessing Your Needs – Following is a list that comprises the elements you should consider in identifying and evaluating your needs. You may want to think about these things before talking to a financial planner to ensure the time you spend in conversation is well spent. If you have questions about any of these elements, a financial planner who works with the elderly will be well versed in all of these issues and should be able to address any concerns.

Financial needs Insurance coverage and limitations Income sources Expenses (present and future) Assets availability Real estate needs Human resources; Health care, personal and quality-of-life issues Legal concerns

Assessing Your Resources – After you’ve identified your needs, think about the resources that you will need, and the ones that you already have at your disposal. This will help you develop a plan of action. Make a list of the following resources that you might need:

Public resources, including prepared food services, community activities, religious and charitable assistance/support, etc. Private resources, including family members and/or caregivers

Service providers and advisors planning can make a huge difference in finding the best solutions. Knowing all of your needs and resources is paramount before making any major financial changes. Financial decisions generally should be holistic in nature, therefore recognizing that everyone; seniors and caregivers; all have different needs and resources, unique to their particular situation. Making financial decisions based only on your present situation, without full consideration of everything, can have disastrous results.

By: Allen Jesson

Financial Planning Retirement Planning – You Can’t Separate The Two

admin — Fri, 20 Nov 2009 04:07:21 +0000

So what do financial planning and retirement planning have to do with each other? The answer is everything. Simply, you cannot conduct your financial planning responsibly and effectively without also knowing where you want to be upon retiring. Your financial planning should merely be an exercise to help you get there.

Most people lose sight of their retirement, especially when it seems like a long way off; instead, they focus only on being able to acquire enough assets for the here and the now. Once they reach retirement, they realize they don’t have enough money to retire on. Don’t let this happen to you.

When it comes to financial planning and retirement planning, you may want to hire a financial planning advisor to help you achieve your retirement planning goals. Most people never take this important step, and therefore don’t achieve their retirement goals. Of course, a retirement planning advisor will be helpful, but is not really necessary if you are financially educated yourself.

How can you become financially educated? There are many great books to read on the subject of an investing, whether it be real state investing, stock market investing, mutual funds, etc.

The most important thing is that you educate yourself financially when it comes to financial planning and retirement planning. Even if it seems like you don’t have the time necessary to do this, helping your financial education is one of the most important steps you can never take in your life. Of course, if you absolutely don’t have the time necessary, or really don’t have the patience, then hiring a financial planning advisor will be well worth your effort.

Before you do so, however, have a plan in place for which you want to accomplish, because only then can a financial planning advisor really help you. Think about it: if you go to a financial planning advisor without having a plan in place, you won’t know how much money you will need to live the lifestyle you want.

Without having goals already set, both now and in your retirement, how can your financial planning advisor ever help you get there? You would never get in your car and start driving without having a destination in mind, would you?

The bottom line is this: you cannot separate financial planning and retirement planning. The two are intertwined; therefore, whenever you are conduct your financial planning affairs, always keep in mind your retirement planning and what you want to accomplish for your golden years. You will be glad you did.

By: Shawn Mitchell

Financial Planning

admin — Fri, 13 Nov 2009 08:44:42 +0000

Financial Planning is the process of creating strategies to help you manage your finances in order to meet your life goals. It is a complicated matter that all rational and capable people must one day begin to pursue. Financial Planning consists of four primary steps: creating Financial Planning Objectives, developing plans that will fulfill these objectives, creating a budget by which the assets will be obtained, and finally review and revision of the financial plan.

The Financial Planning Objectives can be divided into 5 sections. The first is the basic things you need for survival, and obviously this is the primary objective that must be met before others can be considered. These things are comprised of food, clothing, shelter, and even our automobile expenses. Next is the money left over that we can afford to put into savings or an emergency fund.

Then there are the discretionary insurance you put on things such as life insurance, home owners insurance, and auto insurance. Investment is the next step, the accumulation of assets in order to secure a return. Finally, we have estate planning which includes providing for heirs by leaving them assets and minimizing taxes.

After the Financial Planning Objectives have been laid out, financial plans must be devised in order to fulfill them. This is done by analyzing both your current problems that are keeping you from obtaining your goals and whatever economic opportunities from which you may currently benefit. Solutions are then developed on how to fix the problems or benefit from opportunities and then they are implemented. The final step is to monitor and keep track of these objectives and review their progress.

The third step in the financial planning process is to devise a budget by which the previous objectives can be accomplished. There are three steps to the budget creation process: identify how you’re spending your money, set goals for yourself that will accomplish your financial plan, and track your spending to make sure you’re following your budget. Look for small expenses that add up over time, reduce larger expenses, and try to cut taxes. Finally, keep track of how inflation will influence your savings.

The final step in financial planning is to review and revise your financial plan There are many reasons for this step, the most important being to make sure that you are meeting your objectives and that these objectives are helping to achieve your goal. It’s also important to review and revise your financial plan as you may have a drastic change in circumstances, your objectives may have changed, and maybe you have made a change to your long-term financial goals.

Financial Planning may seem to be difficult and time consuming, which it is, but with practice and dedication you will find it to be easier than you expected. There are also many financial institutions and computer software that can aid you when it comes to financial planning. Remember that with social security becoming less trustworthy, you’ll never to young to begin to prepare for retirement.

By: Usha Pradhan