ESG | The Report

What are Financial Planning Tools?

Financial planning tools help you to determine your net worth, save for retirement, and estimate how much money you will need in the future to maintain your standard of living. The tools can show you where you are now, what progress you’ve made toward your goals, and what other goals there are that should be considered.

How do I determine my net worth?

To calculate your net worth, take the value of all of your financial assets (assets that produce income) and subtract the value of your liabilities (things you purchase). You can determine the value of your personal assets by examining statements for various accounts, including savings and checking accounts, certificates of deposit (CDs), stocks, and mutual funds. Your net worth calculation would look like this:

Financial Assets – Liabilities = Net Worth

$20,000 – $10,000 = $10,000

What is a net worth statement?

A net worth statement shows what assets (house, car, stocks, etc.) you own minus any outstanding debts (credit cards, student loans, mortgage). The statement shows your net worth, or how much money you would have if you sold all your assets and paid off all of your debts.

What items are used to calculate personal net worth?

Many different types of financial assets can be used to calculate personal net worth. These include bank accounts, savings bonds, real estate, certificates of deposit (CDs), individual stock shares, retirement accounts such as 401(k)s and IRAs, mutual funds, annuities, trusts, small business ownership interests, and other investments. Frequently it will include checking account balances; however, since this asset is an interest-bearing liability of the financial institution that provides the account (e.g., a certificate of deposit), it should not be counted.

From Net Worth to Financial Goals

Financial objectives are goals you want to achieve during a certain amount of time. The goals that individuals wish to achieve in their life span are generally predetermined. If a person has a large family, for example, they may want to go from renting space to owning their own property. Saving for your child’s college education and saving for your own retirement are common financial goals.

Financial goals include materialistic and non-materialistic goals. Some examples of common financial goals include:

  • Saving for emergency funds
  • Paying off credit card debt
  • Creating a will
  • Saving for college education
  • Buying a home

Financial goals can be achieved through savings, investments, buying property, or debt repayment. Financial goals can also include finance-related objectives, the sale of an existing asset at the right time, and the purchase of a new one at a lower cost than its current market value. Many financial planners believe that you should write down your financial goals and review them every few months.

How do I set financial goals?

You must first set an objective financially. Determine what will be achievable during the short, mid-range, and long term. SMART in financial planning stands for specific, measurable, achievable, realistic, relevant, and time. For example, if you are looking for a new home it is important to save money over the years. If you want to save $25,000 for your first house, figure out how much you need to save per year in order to realize this goal in 5 years.

Remember to be specific about what your goal is. Make it measurable by defining the cost. Also, make it an achievable goal that is realistically within your means. Make it relevant and set a time frame.

Short-term financial goals

Short-term financial goals are typically smaller in scope and limited in time. Short-term goals include going a long way toward eliminating unnecessary spending. Your goal might be to find a financial expert who will help you set a vision for the future. You may want to get serious about eliminating your unwanted spending, deleting credit card debt, saving a specified percentage of your income, or establishing an emergency fund for rainy days. Other short-term goals might be setting up a college fund for your child or going on a trip with friends. A short-term financial goal is defined as a goal that you want to achieve within the next twelve months.

Midterm Financial Goals

The trend to weight financial plans around the near and longer-period goals is known as the “barbell” approach. Some attention must be given to mid-range ambitions – those ambitions that would need 3 or 4 years to reach.

Mid-range financial goals would include buying a house, saving enough for retirement, or having enough budgeted to take the kids on an annual vacation. These are things that you might want to accomplish in 3 or 4 years.

For example, it would be unrealistic to have savings earmarked for retirement if you had credit card debt of $50,000 dollars because your priority should be paying off the credit card balance before creating more expenses by taking on additional debt. This is not to say that you shouldn’t contribute towards savings until all debts are paid off but don’t get caught up in impulsive shopping once the debts are paid off.

Long-term financial goals

The biggest financial goal for most people is saving enough money to retire. You should save 10-15% of each paycheck in a tax-advantaged retirement account. To be sure you are saving enough you need to determine how much you can afford to retire. You must know how much money you need to save before your retirement can begin.

This will provide an excellent retirement plan for any single person. It’s never too soon to start a regular automatic deposit on taxpayer-advantaged investing accounts. It will help if you can make dollar-cost-averaged investments that span from 30 to 40 years.

How do I achieve my financial goals?

The best way to achieve financial goals is to have a plan which prioritizes your goals. Your goal should be separated into three periods: short, medium, and long-term. The goal-setting procedure is involved in deciding what plan you will follow and how long it will take you to achieve each goal.

Financial goals should be based on saving and investing principles using a variety of investment products that are available. The purpose is to ensure that you will still have enough money in the future when the need arises.

How do I set my financial life plan?

1. Create a cost-of-living estimation sheet: This will help you discover your minimum income needed in retirement; it will include present and future expenses that you will be spending.

2. Set an investment plan: This is simply a table of the years and the corresponding monthly savings required to attain your desired goal. The amount will include how much you are investing, in addition to any other income that you could receive after retirement, such as social security or pension benefits. Then, estimate your life expectancy, and choose an investment plan that you believe will help you maximize the amount of money available during these years.

3. Calculate your current savings: The result of this step is how much you would have accumulated prior to retirement. For instance, it is possible to calculate our own pension benefits based on historical data. You can access the current benefit rate, and use it as a reference for your own calculation.

4. Project future salary: Public employees often have their pension benefits based on their final salary before retirement. Therefore, you might want to calculate this figure if you happen to be a public employee. Alternatively, if you are employed by a private company, or if you are self-employed, then it might be based on your current income.

5. Project future expenses: In the early stage of retirement, there is a greater likelihood that medical bills will escalate as people grow older. Therefore, try to calculate how much medical expenses you will have during those years.

Establish a budget

You can easily monitor your spending with a free budget program like Mint. It might be useful to create a budget through your bank statements and bank accounts. Can you afford to eat out? on a regular basis? Maybe. But you could also find ways to spend less when you dine out. Or, eat at home 6 days a week and dine out once. You might also be surprised to see how much you spend on socializing over a weekend. Or what about impulse buying of things that you rarely use twice? If you are unhappy with your spending habits you could make more informed decisions on the direction you want your money going.

Pay off credit cards

The best way to get out of debt is to pay off the credit card with the highest interest rate first. Another way to do this is by paying off your debts from smallest to largest. Another option is negotiating with the card issuer and paying a percentage of the debt. It’s not advisable to wait until all your bills are paid before you begin paying off credit cards. For most people, it’s best to pay credit cards off as they come in because if you can’t afford to pay all your bills on time every month, you’re not going to be able to pay off the debt at all. There are many options when it comes to eliminating debt. But it’s important to eliminate debt as soon as it is accrued.

Pay off student loans

Student loan debt has become an enormous burden. By dropping or eliminating these payments one can free up a lot of capital and reduce your stress. The best way to repay a student loan is by refinancing with a new loan having a lower interest rate. If you refinance a federal student loan with a private lender you might lose some benefits associated with a federal student loan such as income-based repaying, deferment, or forbearance. You can also get lower interest rates. There are many options and you need to do a little digging to find the right fit for you.

Develop a goal chart

A financial goals chart can help. Here are the five steps you will follow to create a target chart:

1. Determine your financial goals and where you would like to be in 5 years, 10 years, 25 years, or more depending on how far out you want to plan and look

2. List the steps that will accomplish this goal

3. Prioritize these items so they can be completed in order

4. Break up the major milestones with smaller objectives and make sure to reward yourself when you reach these points

5. Develop a plan, add action items and deadlines, and stick to your revised schedule; this will make it easier to stay focused on what needs to be done

Prioritize then achieve. After accomplishing many simple goals, you will gain confidence in your decision-making. This motivation can be pushed further into more difficult goals which may require more time and effort. It might sound intimidating, but setting incremental targets is the best way to conquer large goals. Crawl, walk, run, fly.

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Write them down

Remembering your goals will ensure that you stay focused. Stick them onto your car dashboard, computer, or your bathroom mirror. Make it a commitment to yourself. Give yourself written intentions. Writing things down may seem old-school, but there is a connection between the pen and the brain. This connection helps you remember your goals better, work towards them more efficiently, and reach them faster. Implementing these tools in your financial life will help you stay on track with your financial goals. You will be less likely to spend money that needs to go into your future.

Make them measurable

If you want to pay $15,000 towards this debt in the next year you have to pay at least $1250 a month to accomplish the goal. Splitting your goals into smaller chunks will get you motivated as you pull off the small goals.

Make them specific

You don’t just say “I want money for my happiness.” That’s just not very clear. What you were looking for was: I’m not taking a payday for one year.

Give yourself a deadline

Book author Benny Lewis said there are only seven days in a week and ‘Someday’ is not one of those.

Make sure they’re your own goals

It’s easy to look elsewhere for what other people do and think you have to do it. Even when your friends pay second mortgages for remodeled kitchens it doesn’t mean you should. Put the blinders on, focus on your goals, and cross your finish line. When you choose a finance goal make sure it’s the perfect solution for you.

Consider life insurance and disability income insurance

Term life insurance is the least costly and most complex type of life insurance. Most term policies require doctors’ underwriting. So unless you’re seriously ill a term policy is likely to be available for you. In certain cases, disability insurance would replace part of your income for someone who was in serious injury. This provides a larger benefit than Social Security’s disability income and allows a person (and their family, if you do have one) to live comfortably when the other person loses that income. There is a time gap between when the benefits for medical services stop and when your benefits end.

Life is good when you have a plan

Life is good when you have a plan. It may help you accomplish goals like buying your first home, paying for college, or retiring one day comfortably. Financial planning is important for everyone. Planning financially includes assessing your current situation and making decisions based on the information you gather to best suit your future needs. Life events can change quickly; having a solid financial plan helps you stay on track with your goals. Plan your work and work your plan.

Caveats and Disclaimers

Any references to investment in your financial future, financial goals, certified financial planner, financial planning, financial security, retirement savings, financial health, financial plans, financial goal, retirement income, life insurance, financial wellness, personal finance, credit card debt, debt management, save money, student loans, savings account, income-based repayment, saving money, emergency fund, financial decisions, financial plan, exactly what, stock market, monthly basis, checking account, reach your financial goals, own goals, money, retirement, annual basis, feel confident, top priority, short term financial goals, long term financial goals, setting financial goals, budget, investment, long term goals, cash, debts, budgeting, focused, set goals, services over five years are meant purely as informational and not to be construed with financial investment advice or opinion. Thank you for reading.

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