Financial Planning First Steps

January 14, 2019

The start of the new year is an appropriate time to work on getting a handle on your finances.  This week, we will use this space give you the first steps towards reaching that goal.  The start of the new year is a good time to make this change, along with your other New Year’s resolutions.  Hopefully, by the end of 2019, you will have improved your financial position and taken charge of your financial future.

The first step in the process is to create a net worth statement.  To do this, you will need to gather all your statements for all your financial accounts, both assets and liabilities.  Your assets will include cash on hand, checking and savings accounts, money market accounts, certificates of deposit, stocks, bonds, mutual funds, IRAs, other retirement accounts, annuities,  investment real estate, and life insurance cash value.  Other assets will include the assets you use in your day to day life, such as your home, vehicles, furnishings, jewelry, art, sports or hobby equipment and anything else you could potentially convert to cash.  With these other assets, it is prudent to be conservative in your valuations.  Things like this are often worth more to us than they would be to someone else.  For the liability side of the net worth statement, you will list everything you owe.  Start with current liabilities such as current unpaid bills, credit card debt and installment debt.  Next list your longer term debt like mortgage and home equity loans, student loans and 401k loans.

Once you have listed your assets and liabilities, total each.  Now subtract your liabilities from your assets and the resulting number is your net worth.  The net worth statement is a snapshot of your financial situation at a specific moment in time. It is the financial equivalent of the “You are Here” sticker on the map at the amusement park or mall.  The next step is to figure out where you want to go and how to get there.

Begin this step by listing your financial goals for your life.  Freeing yourself from debt and saving for retirement are probably the most common, but you might include others as well.  Funding your children and grandchildren’s education, buying a second or vacation home, new cars, retiring early are all things you might want to consider, along with your other dreams.  Next you must prioritize the goals you have listed.  For the most part, this is a personal decision, but two things should really be at the top of all of our lists, getting out of debt and preparing for retirement.  The burden of debt will make it difficult to achieve any of the other goals you have, so it is incredibly important to break that cycle.  Preparing for retirement is critical as well because social security will most likely not be enough to fully fund your lifestyle in retirement, and employers are increasing putting the burden on employees to fund retirement by eliminating pensions in favor of 401k plans.

Once you have prioritized your goals, you can begin the work of making them a reality.  For debt elimination, you must consider a timeframe to get the debt paid off, then budget the money each month to make that happen.  If your goal is to be debt-free in two years, you will need to budget one twenty-fourth of your debt total in addition to your regular monthly payment.  If this is too much, you’ll have to increase the time it takes to pay off the debt.

For your savings goals, including retirement, you’ll first need to determine how much you will need and when you will need it.  Next you will have to determine what your rate of return will be on the assets as you accumulate them.  For long term goals, you can use the average returns of stocks, bonds and cash since these asset classes tend to revert to the mean over time.  For shorter goals, you will probably want to use very safe choices like certificates of deposit and savings accounts.  Once you know how much you’ll need, when you’ll  need it, and what it will earn, you can work backwards to determine how much you should save each month. 

These simple steps will start you down the road of a financially better 2019 and beyond.  Next week, we will discuss developing a budget in greater detail.  In the meantime, if you have any questions or topics you’d like us to address, go to and use the “Contact Us” tab.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

Securities and Advisory services offered through LPL Financial, a registered investment advisor.  Member FINRA/SIPC.