There are a lot of DIYers out there. If you are one of them, you need to make sure you have your own WRITTEN financial plan. I have yet to meet anyone who really does. Many people have told me this is simply because they do not know how.
So let me help you out!
This weeks blog post is all about how to create your own written financial plan.
You do this by subtracting your liabilities (what you owe) from your assets (what you own).
Let me walk you through an example:
This is something you want to do at least yearly to track the progress you are making. This is by far one of the best metrics out there.
Most people do not take the time to refine their goals. Do not skip this step. There is no way to know what to do with your money if you do not know where you are going. Some common goals I see are:
Lay out all your goals so you can come up with a plan on how to get there.
I am a big believer in reverse budgeting and think you should give this a try yourself. Here’s how:
Let’s say you make $15,000 a month. You first need to figure out what your fixed costs are, what your needs are, etc.
Then subtract that number from your income.
So if your expenses are $10,000, that means you will have a $5,000 surplus ($15,000-$10,000).
Your next step is to figure out where that should go (hint: look at your goals above). Then automate this all and let it manage itself.
Now after doing step 3, figure out your total monthly spend and compare that to your emergency fund. If you spend $15,000 and feel comfortable with a 6 month emergency fund, then you need $90k saved. Compare that to what you have to see if you need to save more to get there. You should be reassessing your emergency fund needs yearly.
Do you need more life insurance? Did you get a new job and no longer have disability insurance? Is now a time to get more coverage on home, auto, etc? Do you need to get umbrella insurance? Review this every other year at a minimum and make sure you are properly covered.
Do you believe in all your investments?
Did you make bad investments that is finally time to get out of?
Do you need to rebalance your accounts?
Do you have some tax loss or gain harvesting to do?
It is a good idea to go through each of these questions every year to make sure you are still investing the right way.
But be careful to not just make changes every year based on what did well last year. Rarely does that asset class come up on top again.
Be smart. Make long term investment decisions.
I can not reiterate this one enough. You need to make sure you have your estate planning documents done. And you need to make sure you are updating them as you move, get new assets, have more children, etc. Make sure it is up to date!
There’s more you could do, but this gets your a vast majority of the way there.
If you are going to DIY your financial life, then you need a new plan yearly!
Disclaimer: None of this should be seen as advice. This is all for informational purposes. Consult your legal, tax , and financial team before making any changes to your financial plan.
Financial Advisor