A Financial Plan Template

75% of Americans lack a financial plan. And 6 out of 10 live paycheck to paycheck without any substantial cushion or savings. Certainly this is an emergency and a threat to our national security. When so many millions of Americans are on the brink of financial disaster, one life event can result in bankruptcy, welfare and being stuck in the ER. And guess who pays for this flawed and failed system? We all do as taxpayers. Beyond the economic costs there are huge social costs in higher rates of stress, anxiety, mental illness, etc. One tool to fight back against this problem is for folks to write a financial plan. A plan is right up there with developing a simple budget document. Therefore I decided to develop and present a financial plan for folks to use as an example. And like many things, this does not need to be that complicated or perfect. Consequently, a financial plan is important because it is a tool to use as a launching point to financial stability and ultimately freedom. Sometimes it is just important to do something and start the journey. A financial plan could be the critical first step.

Why a financial plan?

Without a plan you will just flounder around and through life. Therefore, plans are developed as a road map and tool to guide us towards a chosen goal. We are wise enough to know that plans to do not usually go exactly to plan, but that is no reason to forgo one. We all know the saying, “the best laid plans of mice and men…” meaning things almost never go exactly to plan. But, it is still a vital tool and instrument to improve our situation. I attribute large amounts of success to writing down plans and ideas over the years. Not all have worked out, but the process of writing the plan helped me to focus my mind and actions in a sequential and organized manner.

Planning is critical to all things

Without planning humanity would have nothing. In other words, we would not have climbed out of the muck 100,000 years ago and begin hunting and dominating as a species on planet earth. Consequently, we would not have landed on the moon. And we would not have invented computers and countless other technological of the modern world that quite simply make our existence somewhat nice. Isn’t that worth a plan or two or thousands? Planning helps us first identify goals. Preparing for the future makes us stronger throughout time. It allows us to consciously play out various scenarios and explore alternative possibilities. Plans put our priorities and actions on a page that we can reference throughout time. I am not talking about spending weeks on end devising a complicated MS projects Gant chart or Excel worksheet, although if your were into that it might help. I am talking about every single adult American sitting down with a piece of paper and a pencil and making 3 basic lists.

The 3 basic lists

I believe there are 3 critical categories to the financial planning sheet. The first critical element is writing down your financial goals. What do you want to achieve with your money? Money is a tool, what do you want to build? sending a child to college? funding your retirement so that you can live the last quarter of life with less stress? Taking some lifetime dream trip somewhere? Make a list of your goals. Next I advise assigning some kind of number to these goals. And I would use the 4% withdrawal rule on your investments. In other words, if you can fund your dreams with $60k per year, then determine how much an investment nest egg you need to pull 4% out each year. So to safely withdraw $60k per year from your investments you need a nest egg of at least $1.5 million. That might be a great starting point. Perhaps you also want to spend $40k to help your child go to college? Perhaps you want to take some cool trip in life so add another $20k. So, let’s say our theoretical person needs to accumulate about $1.6 million to make their goals come true. This number can be adjusted over time, but this is a starting point. Things like social security and Medicare can be thought of as extra padding or insurance. Next I believe you should make a list of action items. In other words, these are the things that must be done in order to achieve the stated goals. For example, one item may be automatically contribute 12% of each paycheck to your 401k or other investment accounts. If you want to leave an intact monetary legacy to your children then add go develop a revocable living trust and will. Etc. The third component of the financial plan is the snapshot of where you are. In other words, this is your net worth/assets statement. Firstly this is a list of financial assets minus all your liabilities. And this gives you a clear picture of where you are on your journey to your goals. It might motivate you to take further steps to make some of the goals come faster.

SAMPLE FINANCIAL PLAN

1. GOALS

Secure comfortable retirement at 57
Raise and support family
Send children to college
Travel once a year
Leave a legacy
Estimate of $2.5-3 million in net worth required to support goals
A simple budget. In this section I also include a basic budget. How much is needed to cover housing, health insurance, food, transportation, etc.

2. ACTION ITEMS

Contribute 10-20% consistently to savings/investment vehicles. Investments to be diversified and low cost. No crazy investments, sound and logical
Execute Revocable Living Trust
Pay down mortgage debt/control debt
Side hustle to bring in a little extra money and learn new things

3. ASSETS/NET WORTH/INCOME

The main goal of this section is to identify all assets and sources of income. You have to ensure your income and assets can safely support you over the course of 40 plus years of retirement.
$200,000 Equity in rental property
$250,000 in 401k stock and bond funds
$20k in Fidelity brokerage account
$20k in savings
$100,000 in equity in primary residence
– I personally do not like to include vehicles and personal property. Use collectibles and other items sparingly.

A living document

Financial plans are living documents that can be amended and evolve over time. I review mine on a regular basis and make adjustments as needed. The plan may look different at various stages of life. For example, at some point you may be more focused on sending a child to college vs. an extreme asset accumulation phase, etc.
The important thing is to get started. A plan can be as detailed or as basic as one wants to make it. But it begins with a piece of paper and a pencil!
* This is not financial advice to anyone. See a fiduciary financial professional for questions about your particular financial planning. For informational purposes only.

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