We understand that, based on what you’ve heard or experienced, creating a Financial Plan can feel overwhelming and costly. While our firm’s detailed plans are more comprehensive than most people can create on their own, we’re here to encourage you to take that first step toward financial confidence. These are the essential components. If you need to start on your own, that’s fine. No one plans to fail, but too many fail to plan. Contact us if you would like help.
Budgeting/Cash Flow Planning
What constitutes an adequate emergency fund for you?
- Emergency Fund Ratio = Cash & Cash equivalents / Monthly Non-Discretionary Expenses
- Cash & Cash Equivalents are funds held in savings, checking, and other easily accessible accounts.
- Monthly Non-Discretionary Expenses are any expenses you will still need to pay in the event of a job loss, injury, or other unexpected occurrence (mortgage, rent, insurance, loan payments, credit cards, etc).
- This ratio determines the number of months you can cover your expenses that would remain after a job loss, injury, or an unexpected occurrence.
- Target: 3-6 months
- What is an appropriate debt ratio for you? Six months provides a greater amount of security to allow you to get back on your feet.
Analyze your debt situation:
- Housing Ratio (Basic) = Housing Costs / Gross Pay
- Housing Costs would be the cost of your monthly mortgage or rent expense
- Gross Pay would be all income received monthly
- Target: <28%
- Housing Ratio 2 (Broad) = Housing Costs + Other Debt Payments/ Gross Pay
- Mortgage or Rent PLUS all monthly debt payments (auto, student, bank loans, credit card payments, etc)
- Gross Pay would be all income received monthly
- Target: <36%
- Debt to Total Assets (leverage ratio) = Total Debt/Total Assets
- This ratio reflects the portion of your assets owned vs financed
- It varies greatly depending on your stage in life.
- It’s commonly as high as 80% for younger people and as low as 10% for those nearing retirement.
- Net Worth to Total Assets = Net Worth/Total Assets
- This ratio reflects the percentage of total assets owned vs financed
- It also varies greatly depending on age/stage in life
- As low as 20% up to 90-100% for retirement-aged
How much are you saving to fund your goals?
- Savings Rate = Savings + Employer Match / Gross Pay
- Savings + Employer Match refers to the funds you deliberately allocate to your savings or investment accounts and any contributions your employer makes to your workplace retirement plan.
- Gross Pay includes earnings from all sources
- Target: depends on your goals, but at least 10-13%
Insurance Planning
Are you sufficiently protected against financial losses due to death, disability, or accidents?
What personal, property, and liability risks do you encounter, and what are the most effective strategies to cover and manage them?
Retirement Planning
Today is the first day of your retirement. How does it look?
Take some time to visualize it. Where are you? At home in your cozy living room surrounded by those you love, or maybe on a beach, basking in the sun. What plans do you have? Will you be traveling the world, cruising the countryside in your RV, volunteering, or simply enjoying leisure days? The costs required to provide what you need for your chosen lifestyle must be considered to ensure you have the financial freedom to live those goals.
What other retirement benchmarks are you using?
- What age would you like to retire?
- What percent of your current income is needed to maintain your lifestyle?
- What is your retirement life expectancy?
- What are the anticipated rates at which to base your retirement plan? (inflation rate, tax rate, and investment return based on your risk tolerance and asset allocation)
- These figures will determine the likelihood of success in meeting your goal retirement age and income needs.
Education Funding
Do you need to plan to fund education for children or grandchildren?
These figures are needed to help estimate your funding goals:
- Current age(s) of children/grandchildren
- Current cost of the estimated education goal to fund (cost x # of years)
- Tuition inflation rate
Legacy Planning
Do you wish to create a legacy for a charitable organization? Is your objective to enhance your family’s wealth?
- Gift in today’s dollars
- Estimated inflation rate
- Expected estate/gift tax rates, exclusions, and exemptions (state & federal)