The starting point is the current holdings and sources of funds and how they add up. In other words, a financial inventory that includes total income, tax rates, credit score, expenses, debt load, account balances, assets, real estate and total net worth.
The baseline
A financial plan must be based on reality to be successful. The baseline is an all-encompassing examination of actual spending, saving, and giving.
The next step
The next in a financial plan is to identify the destination. Here are some examples of financial destinations:
- Debt free
- College funds
- Seasonal home
- Retirement at a certain age
- Charitable legacy
The process
The process of financial planning is applying known elements that have proven to be successful. These elements include:
- Annual review of the financial plan
- Establishment of an emergency fund
- Systematic savings and investments
- Diversification matched to risk tolerance
- Dollar cost averaging
- Discipline
- Tax minimization
- Protection against downside risks
- Regular rebalancing
- Insurance to prepare for the unexpected