Reduce Debt Increase Wealth

Financial Plan

February 06, 2022 MIsterchuck Season 2 Episode 99
Reduce Debt Increase Wealth
Financial Plan
Show Notes Transcript

The final process is to create a financial plan. Getting here has been a lot of work tracking income and expenses, creating a budget, getting a debt reduction plan in place. Now the final step is to put down on paper your financial plan. 

 Article Links:

https://www.franklintempletonindia.com/investor/investor-education/video/importance-of-financial-plannng-io04og31 

 https://www.investopedia.com/terms/f/financial_plan.asp

How to contact Misterchuck , for questions, comments, requests use this email address. Reducedebtincreasewealth@gmai.com

Charles McDonald:

Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination. Financial Plan, the final process to create a financial plan and getting here has been a lot of work, tracking your income and expenses, creating a budget and getting that debt reduction plan in place. Now, the final step is put down on paper, your financial plan. But what is a financial plan I have financial plan is a document containing a person's current money situation, and long term monetary goals, as well as strategies to achieve these goals. A financial plan begins with a thorough evaluation of the person's current financial, state and future expectations and may be created independently or with the help of a Certified Financial Planner. You're tracking all your income and your expenses, here creating a report to give you the totals on a monthly basis. So you can use that for your budget for the next month, then you're putting your actual spending amounts and your budget. So you're seeing where your money is going. That is a very good evaluation of your finances. You know, you have a lot of credit card debt or does a lot of debt in general, and you've set up a debt reduction plan, these are the things I already covered. Generally, if you would go to a financial planner, or look this stuff up on the internet, if they would be having you create a financial plan first. But you really can not create a financial plan first, because you don't know what your finances are. So that's why I started in reverse. And if you've done this over the last three or four weeks, and you've done everything that I've told you to do, or ask you to do, because you're wanting to get out of debt. And for those of you who are not in debt, but maybe want to reduce whatever debt you have, maybe you already have a financial plan, that now if you've been tracking your income and expenses, you have a monthly budget, and you've been updated in that budget, and you know about when your expenses are due and when they're due. So you're planning ahead, you've set up a savings account, you start building up your emergency fund, you're way ahead, because now you know more about your finances. So now is the time to put down in a document, write it down on a piece of paper, you can go into a word processor and just heading financial plan and start typing. That's as simple as it is. Because only thing we're gonna do is identify what your current problems are. Step one, identify, I have too much credit card debt, I owe X amount and credit card debts. I have a debt reduction plan. I expect to be out of debt in the next four years where the credit card debt credit cards to be paid off within the next four years. And that's one of your strategies. What else is the strategy? What else should be and your financial plan? Most all of them has gone to say you should calculate your net worth. What is your net worth? That's the assets. That's the current market value of everything you own, less everything you owe. So if you have a home and a couple cars and some furniture, what's the what could you sell it for today? And that's your value of your assets. Then you subtract from that all your debt, the loan on the home the loan on the cars, student loans, payday loans, personal loans and credit card debt, subtract all that. Is that a positive number? If it's a positive number, that's your net worth. If it's a negative number, that means you owe more and debt than what you have in assets. And that definitely could happen if you have a lot have student loans and you yet to purchase your first home or any other asset that would be a value a great value. So then you determine your cash flow, we are already done that because you are tracking your income and your expenses and that your cash flow, then you must consider what are your priorities? Why are you trying to get out of debt? And it's got to be more than well, because I'm tired of paying all these credit cards and I'm struggling to stay up with it. While the yes may be a good reason, but what else you have in your plans? Are you trying to say money up to build up an emergency fund, that could be a goal? Are you trying to say more money than that, to have a down payment for a home, or an automobile or large purchase of an asset. That could be a goal. And one goal that everybody should have once you start working is I need to save money for retirement. And then if you have children, do you need to save money for college tuition, because that's gonna be a lot by the time your children are in college, that tuition is gonna double, triple or higher than what it is the day they're born. So if you're even thinking about send a number and least given an option to go to college, he got to start saving for their college, the day they're born or before. What is your retirements that strategy no matter what your priorities are, the plan should include a strategy for accumulating the retirement income you need. A comprehensive risk management plan. This review includes a review of life and disability insurance, personal liability coverage, property and casualty coverage and catastrophic coverage. So what they're saying is, you need insurance of all types to cover if anything would go wrong. Plan further or worse hope for the best long term investment plan. What is your risk tolerance? The younger you are, the more risk you can take. Because you have more time to recover from a downturn in the market or a downturn in whatever you're investing in. The older you are, the less risk he should be taken because you have less time to recover from a market drop or the price of anything going down. And then we have a tax reduction strategy as strategy for minimizing taxes on your personal income to extent allowed by the tax code. And that's where your tax preparer comes in. And having more mortgage and more debt to reduce your taxes is not a good way to go. And then we need an estate plan. What are your plans for if you die? How do you want? Do you want to be cremated? He won't be buried. Where do you want to be buried? What kind of funeral Do you want to have? All those type consideration and how you're going to pay for it? If you die suddenly How would your family pay for your funeral because the funeral director is going to make them feel guilty and having spent more money than what they can afford. And the purpose of a financial plan is designed to help you make the best use of your money and achieve long term financial goals. Whether they are sending your children to college buying a bigger home leaving a legacy or enjoying a comfortable retirement. How do you write a plan you can write a plan yourself or enlist the help of a planner. The first step is to calculate your net worth identify your spending habits. Once this has been documented, you can consider long term objectives and come up ways to achieve them. What are the key components the key components doesn't have to be a set format, although the good ones do tend to focus more or less on the same things. After calculating your net worth and spending habits, your explore your financial goals and figure out ways to make them achievable. Usually this involves some form of budgeting and creating a means to put money away every month to ensure that you live comfortable for the rest of your life. It's generally advisable to devise a Retirement Risk Management and long term investment strategy to keep taxes expense to a minimum. Very good points. I have in my show notes links to these articles. That one was from I believe, investopedia.com. The other one I have is from Ben Franklin, or Franklin templeton.com. And they take a little bit of a different approach, what is financial planning, financial planning is a step by step approach to meet one's life goals. For good, you need to be in control of your income, expenses and investments, such that you can manage your money and achieve your goals. Once the benefits, increase your savings, enjoy a better standard of living, be prepared for emergencies, attain peace of mind, the bigger your emergency fund, the more peaceful you're gonna be. And the happier you're gonna be throughout your life. Because you don't have to worry about where's the money going to come from my car breaks down how I get money to pay my mortgage, if I'm unemployed, you know, little things like that. Financial Planning for life goals, some of them us wealth creation, how do you create your wealth, retirement planning how far ahead, the sooner you start, the better off, you're gonna be. If you're 25, you're gonna be a whole lot farther ahead, when you retire if you start saving a little bit every year. And if you start when you're 55, your children's education, how you going to pay for it, and saving taxes. Again, that's where your tax preparer could help you. Why is it critical? Well, you got to plan for expenses, because we have inflation. And what you buy today is going to cost you more tomorrow at CES a fact of life. So you need to keep your debt under control. So that you always have enough money that you can use to buy the things you need, such as food and gas for the car, or have a big enough savings account. So you have a down payment when it's time to replace your automobile. So you need to understand your current financial situation, I think we do now because if you've done the tracking, and you created your budget, and you created a debt reduction plan, you got a fairly good grip on your current financial situation. One, you know you have a lot of credit card debt to you know what's coming in, you know where your money's going out. And you can look and cut back and areas in order to speed up that process. Quit wasting your money. Instead of wasting your money, put it in a savings account, and build up that emergency fund. And you can look at different investment options. Once you get that debt under control, what are you gonna do with that money, you're gonna have a whole lot more money, and you get those credit cards paid off, you should be looking at, I need to put money away for my retirement, you need to put money away for your children's education, maybe he need to put money away to maybe buy a second home a vacation home, or a to move to a larger home or a different location for whatever reasons. That's all part of this financial plan. The more your plan, the more you think about your future, the more you consider these things, the better off you're gonna be. And if you don't know what you're going to do with your money, put it in your emergency fund, build it up. Once you get three months or so, put in a high yield savings account. Once you get more than 2030 or 40,000. In the high yield savings account. Now we need to look at the stock market. Where can you invest it. And that's where a financial planner can help you invest your money based on what the risk you're willing to take. And the risk you're willing to take is dependent on your age. The younger you are, the more risk you can take. The older you are, the less risk you should take. And you need to monitor your financial plan on a regular basis. Meaning look at what you wrote down a year ago. Are you still on track to achieving those goals in those strategies? Maybe you need to change it up a little bit. Did something in your life change? Where you have an illness? A new illness in your family some type of illness? Or did you maybe you've moved to that other home us your dream home? Or maybe you're already upgraded your automobile. You need to update your plan once you achieve something Have these goals, and you need to make these goals somewhat achievable. So you have success, if you say I want to have $100,000, in my emergency fund, and it's going to take you 20 years to do it in who give up, you may not ever achieve it, because it's gonna take too long. So make your goal of 10,000. And maybe you achieve it in the year and a half, and you achieved a goal, and then you increase it another 10,000, and maybe achieved it in a year. So you're speeding up the process, and you're achieving your goals faster. Why are you speeding up the process, because maybe you got your debt under control, maybe you no longer have a lot of credit card debt, maybe you've got your budget under control, and you knock out a lot of things you're spending money on, that you're no longer using, are no longer needed, because of things that changed in your life. So that freed up some money to speed up your savings. There's a lot of factors in there. So you need to go through and look at them and update things as your life is changing. I know he may not have time to do it. But just take a few minutes, maybe every once a week or so or every couple months or once a quarter. Just look at it. You don't have to do anything at that point. But then it keeps you thinking about what you're trying to achieve it remind you what you're trying to do. And look at your debt reduction plan. Are you still on track? Are you doing everything you want to do? After you've stopped creating new debt? Are you making the minimum payment on all your credit cards and all the other debt? are you accumulating more money in your emergency fund? Have you achieved the $500 and you got way more than $500 in your savings account, maybe you need to up the emergency fund to 1000. And then slow down on paying that debt for a little bit, that you're going to have more money in that emergency fund. Everything affects everything else. So the more you keep in tune, with everything going on in your life, the more aware of everything, the better off, you're gonna be. I'll be back in one moment was my final thoughts. And maybe a little bit of a history of what I went through to achieve my financial freedom. If this podcast has been helpful for you, please rate and review it on whichever app you're using. If you know anybody that may benefit from listening to this podcast, please refer them. And I thank you for your time and doing so. Financial Plan, you're probably think it's a waste of your time, and you don't need to do it. But it all comes into play with everything else you're trying to do. How you gonna achieve your debt reduction plan, if you don't have an overall plan? What are you going to use the money for once you've quit paying off the debt? Once you get the debt under control? And you can also consider why you in debt? Was it reckless spending habits, or did you just buy too much stuff that you couldn't afford? Or maybe you had a better job, you borrowed the money. And then he lost a job. And he had to use the credit cards to live off of for a while and you got way behind. But it doesn't really matter how you got to where you are today. What really matters is worried and to be in the future, and how you're going to get there. That's what a financial plan is going to do for you. It's going to give you a purpose for your finances. So if you've been tracking your income and your expenses, you created a budget. So you you're you have a target and you're trying to stay within that target on a monthly basis. And you went through all the detail all the categories and looked at everything that you spend your money on, and you reduce some of that. So you lowered your budget down which means you increase your savings and you have a savings account now and you're building up an emergency fund so that you can prevent getting behind and having to use credit cards and yen You've created your debt reduction plan, and you fear quit creating new debt and you're doing a good job on that, you're making the minimum payment, you're building up your emergency fund, he built it up past what you want to have, and then you're applying the money to one of the debts to pay it down quicker. Everything affects everything else. So now, once you get that debt, you're on track of getting out of debt. And maybe it'll be three or four years, that now's the time to start looking forward. What are you gonna do with all that extra money you're gonna have, because you're, maybe you'll get a couple pay raises. And then the less that your hair, the more money you have available. The first thing is, you don't want to get back into the old spending habits, you want to put money into a retirement account, at least 5% 10% of your income, specially if you have a retirement account through work, and you have some type of employer match, you want to put in the amount to maximize your match. If you don't have an employer retirement plan, then IRA is the way to go and put in the five or 6000 a year that you're allowed to put in there, that's going to help reduce your income taxes for federal and state if you have state income taxes, and is this going to help you and you putting money away for the distant future for when you retire? Maybe so security will provide you with enough income, that wouldn't it be nice to have an extra lump of money that you could use, if you want to do something more than just pay your monthly bills. That's what a financial plan is going to do for you. It's gonna help you stay on track is going to help you move forward down the road. Now my personal life, I really never had any type of plans until it was almost too late. The reason I wanted to get out of debt, and I then devise my debt reduction plan, his guy was getting close to retirement. And I know that with the debt, I had, that by using Social Security and whatever money I had saved up, I was gonna be hurting, to even just pay my monthly bills. So I made a plan. And I came up with my debt reduction plan, which I'm telling you all about. And it really helped. I spent my whole life probably 25 years just trying to stay out of credit card debt. And I was probably doing the way everybody does it, I was putting an extra $100 $150, sometimes $500 A month towards that debt. And I really didn't have a substantial savings. And then something would happen that would need tires for the car, or I would need to buy a battery for that. And I had to use a credit card. And then it got like dead got bigger. And I was just one able to keep up with it. And I got behind if I would have had a emergency fund. So when I needed the tires or that battery, I could have paid cash, I could have paid for it and paid it off right away, I wouldn't have been creating more debt, I would have had it under control. That's what I'm doing today. So if that sounds like what you're doing, and I really know had no plan, and I inherited money was I had some money from IRAs I put in when I was younger. And I want got myself a financial planner to help me invest that money. Because I didn't have the time or wasn't willing to take the time to learn everything about the investment that I would be investing in. I had to be general idea what to do. But when it came down to actually put my money in there, I was hesitant and I didn't want to do it. So that's where financial planner came along. And it's helped me greatly. My investments have grown over time. And I'm in pretty good financial position now with no debt and retirement is on her rising and the sooner the better. And I'm going to live a comfortable retirement life instead of a struggling retirement life. And depending on I won't have to depend on The Government to give me pay raises through social security, because they're not going to do that, or if they do is going to be very little. So I took care of myself by getting my finances under control, getting my debt under control, and getting my savings and retirement under control. It the sooner you do this, if you're 40, you need to start working on it. And you'll be in much better shape by the time your retirement comes up. So stay tuned, stay focused, and keep on track with your budget. Keep tracking your expenses. Keep your debt reduction plan in mind and keep your personal finance plan and your strategies and your goals in front of you. So that you know what's going on with your money. You'll be glad you did so