financial planning and goal setting

8/11/2019 Financial Planning and Goal Setting

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nancial planning&goal setting

PERSONAL FINANCE


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The mission of The USAA Educational Foundation

is to help consumers make informed decisions by

providing information on financial management,

safety concerns and significant life events.

our mission


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The Power Of Planning........................................................ 02

Step 1: Identify Your Financial Goals .................................. 04

Step 2: Calculate Your Net Worth ........................................ 07

Step 3: Identify Your Sources Of Income ............................ 10

Step 4: Assess Your Resources .......................................... 14

Step 5: Save For Your Goals ............................................... 16

Step 6: Plan Ahead .............................................................. 20

Step 7: Update .................................................................... 22

table of contents


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Many things can affect the quality of your retirement.

Changes in employer-sponsored benet plans, economic

events that force an early retirement, investment perfor-

mance, rising health care costs, an unanticipated long

term care event, and potential future changes in Social

Security benets are all beyond your control. Thats why

its important to control what you can, by mapping out your

nancial plan and revisiting it on a regular basis. Financial

worries arent necessarily caused by a lack of money, but

from a lack of planning. Solid nancial planning can help

take the uncertainty out of your nancial future and provide

a process that allows for course correction as circum-

stances change.

The purpose of this publication is to help you begin the

process of establishing nancial goals and structuring your

nancial plan. You can use it as a tool to identify the many

things you need to consider in developing your own plan.

Or, if you seek the advice of a Certied Financial Planner

(CFP) practitioner, these completed forms will facilitate the

consultation, and help the professional align your budget

and investments with your personal goals.

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the power

of planning

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Today, individuals are living longer and healthier

lives. That means its more important than ever

to develop a nancial plan that will help you enjoy

a longer and more active retirement. This book

provides seven steps, with helpful work sheets,

that you can follow to identify your goals and

establish a nancial plan for a secure future.


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Certied Financial Planner Board of Standards, Inc., owns the certica-

tion marks CFP and Certied Financial Planner in the U.S. which it

awards to individuals who successfully complete CFP Boards initial and

ongoing certication requirements.

step oneIDENTIFY YOUR

FINANCIAL GOALS

step twoCALCULATE YOUR

NET WORTH

step threeIDENTIFY YOUR

SOURCES OF INCOME

step fourASSESS YOUR

RESOURCES

step fiveSAVE FOR

YOUR GOALS

step sixPLAN

AHEAD

step sevenUPDATE

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STEP 1:

identify yournancial goals

Youll want to select someone you trust com-

pletely. This person could be your spouse,

a parent, a friend or a nancial planning profes-

sional. Whoever it is, youll want to make sure

that person is capable of managing your familynances accurately and responsibly. Once

youve chosen someone, familiarize this indi-

vidual with all aspects of your nancial situation.

Determine

your goals

The best way to start saving is to have

a clear idea of what youre saving for.

When your nancial plan includes spe-

cic savings and investment goals, you

have something to work toward and

that can help keep you focused.

It is recommended that you target at

least 10 to 15 percent of your net in-

come (i.e., take-home pay) to save and

invest each month. Generally, the best

way to achieve this goal is to pay your-

self rst by establishing an automatic

withdrawal that goes directly from your

paycheck to a savings or investment

account each pay period.

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Financial planning involves a bit of soul searching to

prioritize your wants and needs. Consider the following

steps to help you dene, plan and begin saving to meet

your nancial goals:

Examine Your Current Financial SituationAre you spending less than you earn?

What is your net worth?

Dene Your GoalsWhat do you want to accomplish? What will happen

if some of your goals are not accomplished?

Set An AmountHow much money do you need to achieve each goal?

Set A Target Date

When do you need to meet your goal?

Write Down Your GoalsListing them in black and white can help you assess what

you really need or want.

PrioritizeThis will help you follow a clearly focused plan.

Develop A PlanEstablish a budget that includes your nancial goals.

Review Your ProgressPeriodically review your plan and make

adjustments as necessary.

0-3 years Establish and implement a spending plan for income so

you spend less than you earn.

Create an emergency fund of at least 3 to 6 months ofbasic living expenses.

Establish a good credit reputation.

Pay off your high interest rate debt.

Implement a disciplined savings and investment plan.

Purchase a vehicle.

Purchase insurance coverages appropriate foryour situation.

Prepare and execute your will and power of attorney.

Save for a family vacation.

3-7 years Make the down payment on your home.

Plan for a wedding.

Prepare for the birth or adoption of a child.

Provide for your advanced education.

7+ years Plan and save to meet your income, healthcare, and

long term care needs in retirement.

Plan and save to meet your housing needs in retirement.

Provide for your childrens college education.

Plan to support aging parents.

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nancial goals

work sheet

-3 Years

Time $ Needed Time $ Needed Time $ Needed

3-7 Years 7+ YearsGOALS

New vehicledown payment

Down paymenton home

Retirement

2 years

5 years

20 years

$10,000

$40,000

$100K

This Financial Goals Work Sheet is offered as a tool

you can use to articulate and list your nancial goals.

For example, if your goal is to buy a home, you may

list down payment on a home as your goal. Next,

set the target date for when you would realistically like

to accomplish the goal and list it in one of the three

timeframe columns. Finally, determine the amount of

money you will need. Record the amount required next

to your planned goal accomplishment date.

When you complete the Financial Goals Work Sheet,

you are ready to proceed to Step 2.


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STEP 2:

calculate yournet worthOnce you have articulated your financial goals,

the next step is to determine the resources

you will need to help you accomplish those

goals. This requires an objective assessment

that results in a list of the items of value that you

own (assets) and the amount of money you owe

(liabilities). Knowing your net worth is important

because it keeps you in touch with your money

and is a quick and simple way to determine if

you are making progress towards accomplishing

your goals. By completing the Personal Finan-

cial Statement form included here, you can cal-

culate your net worth. First, add up the value of

your assets your home, investments, jewelry,

etc. Then add up the amount of your liabilities

loans, mortgages, credit cards, etc. Subtract the

amount of your liabilities from your total assets to

determine your net worth. Be sure to use actual

market values what your property would be

worth today if you decided to sell it and what

your loans would cost you today if you decidedto pay them in full.

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LIABILITIES $ OWEDMortgages

Personal loans

Vehicle loans

Credit cards

Education loans

Investment loansLife insurance loans

Other

TOTAL LIABILITIES $

CALCULATING NET WORTH

Record the total value of all assets $

Less total liabilities - $NET WORTH* = $

*If your net worth is negative, you may need to focus on cutting your spending and repaying your debts.

personal financial statementpt. 2


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STEP 3:

identify yoursources ofincome

Net worth is just one aspect of your financial situ-

ation. Once you have completed your Personal

Financial Statement and have a sense of your

net worth, you are ready to identify the income

resources available to help you achieve your

goals, plan for expenses, and create a working

monthly budget.

Income from resources such as salary, invest-

ments and retirement are important in helping

you to achieve your financial goals. Also include

any regular, supplementary sources of income,

such as a part-time job. When calculating your

personal finances, be sure to include income

from all of these resources. After you determinehow much is coming in, be realistic in recording

how much is going out and where it is going.

The Budget Work Sheet is a tool to help

you estimate your current monthly income

and expenses. Youll probably want to have

your bank statements and credit card account

statements handy for quick reference.

Recording your expenses and analyzing your

spending habits is a good practice. It can help

you identify where to make adjustments so you

spend less than you earn bringing you closer

towards accomplishing your nancial goals.

When you have completed the Budget Work

Sheet, you are ready to move on to Step 4.

Create yourspending plan

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budget work sheet

INCOME FOR THE MONTH OF: AMOUNTMonthly gross income (total income before deductions) = $

Other income (interest, etc.)

Total Monthly Gross Income = $

DEDUCTIONS

FITW - Federal Income Tax Withholding (if applicable) $

SITW - State Income Tax Withholding (if applicable)FICA - Social Security

FICA - Medicare

Other deductions (for example, Flexible Spending Account)

Total Deductions = $

Total Monthly Net Income (total monthly gross income minus total deductions) = $

EXPENSES AMOUNT PLANNED ACTUALCHARITABLE GIVING

Place of worship $ $

Other

SAVINGS/INVESTMENTS(target at least 10% - 15% of monthly net income)

Emergency fund $ $

Retirement accounts (IRA, 401(k), etc.)Other

HOME/UTILITIES

Food $ $

Rent/Mortgage payment

Property taxes ( of total annual expense)

UtilitiesHome maintenance

Furniture


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budget work sheet pt. 2

EXPENSES (CONTINUED) AMOUNT PLANNED ACTUALPhone/Mobile phone

Internet service provider (ISP)

DEBT

Credit cards $ $

Loans

INSURANCEAuto $ $

Property (renters, homeowners)

Health

Life

Long-term care

DisabilityEDUCATION

Tuition $ $

Room/Board/Travel

Books/School supplies/Uniforms

TRANSPORTATION

Vehicle payment $ $Gasoline/Parking/Tolls/Public transportation

Vehicle maintenance

Registration/License fees ( of total annual expense)

PERSONAL

Clothing $ $

Laundry/Dry cleaningGrooming (hair care, toiletries, etc.)

Child care (baby sitters, child care center)


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RECREATION/ENTERTAINMENT

Vacations (1/12 of total annual expense) $ $

Entertainment/Dining out

Hobbies (for example, golf or tennis equipment and fees)

Club fees/Organization dues

Cable/Satellite television

TOTAL MONTHLY EXPENSES= $ = $

CALCULATE MONTHLY CASH FLOW AMOUNT PLANNED ACTUAL

Total Monthly Net Income $ $

Less Total Monthly Expenses - $ - $

Net Cash Flow (Decit)* = $ = $

budget work sheet pt. 3

* If your net cash ow is positive, you can save more for emergencies or other nancial goals. If negative, you will

have to cut expenses or increase income (by taking a second job, for example) to reduce or eliminate debt.


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STEP 4:

assess yourresources

Now that you have identified your financial

goals, calculated your net worth and determined

your income, the next step in developing your

financial plan is to assess all of your other

resources that is, any emergency funds and

insurance policies that will help protect you

against unexpected setbacks.

This assessment should begin with a look at

your nancial foundation the savings and

insurance coverage you have in place to protect

you when unplanned events threaten to keepyou from meeting your goals.

A strong foundation begins with an emergency

fund of easily accessible savings. Most experts

recommend that people set aside a fund that

covers at least three to six months of basic

living expenses to offset such events as sick

leave, unemployment or unexpected bills.

If you dont already have an adequate

emergency fund, consider making it a priority on

your list of nancial goals. Keep your emergency

fund in a liquid account one that makes it

easy to quickly access your cash such as a

savings or money market deposit account.

CONTINUED

Emergency fundsand insurance

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CONTINUED

Even an emergency fund cannot prepare you for catastrophic

loss or illness. Most individuals buy insurance for these

costly emergencies. The most common types of insurance

include: auto, property (renters, homeowners), health, life,

long-term care, and disability.

It is important to review your current coverages at least

annually to determine if you have adequate protection.

For health and disability protection needs remember to

factor in coverages such as Medicare, Social Security

Disability Insurance and workers compensation insurance.

For life insurance protection needs exercise caution when

factoring in coverage provided through your employers

group plan. Before factoring in such coverage consider

the following:

If you change jobs, will your new employer offer

group life insurance coverage?

If you do not have access to group plan life insurance

coverage, has your health declined to a point whereindividual life insurance premiums are too expensive?

Are you even insurable? Will your current employer offer

you the opportunity to convert your existing group plan

life insurance coverage to an individual policy at a much

higher premium?

If you become disabled and begin receiving long term

disability benets, will you lose your employer provided

group plan life insurance coverage? Will your currentemployer offer you the opportunity to convert your existing

group plan life insurance coverage to an individual policy at

a much higher premium? Consult your employer for details.

You should also contact your attorney regarding your estate

planning documents; these typically include a will, durable

power of attorney and health care directives.

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Here are guidelines for using the Savings Goals Work Sheet:

GOALS

Record the goals you listed on the Financial Goals Work Sheet

in Step 1.

TARGET DATES

Record the target dates of your goals.

AMOUNT NEEDED

Estimate the amount needed for each goal using todays dollars.

Example: If your goal is to make a 20 percent down payment on a

home valued at $200,000 today, you would need $40,000 for the down

payment. You would enter $40,000 under Amount Needed even ifyour target date is several years away.

CURRENT ASSETS

Identify any assets on your Personal Financial Statement from Step 2

that you are willing to commit to your goals. Then, indicate how much

you would like to allocate to each of your goals. Example: If you have

$20,000 saved in a money market deposit account, you may decide to

allocate half of it to the down payment. In this case, you would write$10,000 under Current Assets.

GAP

Indicate the gap between the cost of each goal and the assets you have

allocated to it.

NUMBER OF YEARS TO TARGET DATE

Enter the number of years between now and your target date.

AMOUNT TO BE SAVED EACH YEAR

Divide the gap amount by the number of years to the target date.

That amount will be what you need to save each year to reach your goal.

TOTAL

Add all the amounts to determine the total amount you will need to save

annually to reach your goals. This amount does not account for interest,appreciation or depreciation on assets which are committed

to your goals.

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savings goals work sheet

TARGETDATES

AMOUNTNEEDED

GAPCURRENTASSETS

NO. OF

YEARS TO

TARGET DATE

AMOUNT TO

BE SAVED

EACH YEARGOALS

Down paymenton home

October2018

$40,000 $10,000 $30,000 $6,0005


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Findingthe gaps

Now look back at the Savings/Investments line on your

Budget Work Sheet from Step 3. How does the amount

you are currently saving compare to the amount you have

determined you should save each year in order to reach

your goals?

Use of the Savings Goals Work Sheet can encourage you

to work on your goals today. It assumes your pay increases

and returns on investments will only keep pace with the

rate of ination. Some individuals discover they are saving

more than enough to meet or exceed their goals but

for many, this isnt the case, and increases in savings are

needed to keep up with ination.

Adjusting your plan

If the amount you are now saving falls short of the amount

you need to save to reach your goals, try asking yourself

these questions:

Are you paying yourself rst, with a disciplined saving

and investment program that saves at least 10 percent

to 15 percent of your net income?

Could you increase the amount you are saving?

Could you earn more and spend less?

Are you spending too much on impulse purchases and

neglecting long-term savings goals?

Are your goals too ambitious?

Could you change or eliminate any of your goals?

Could you delay any target dates of your goals?

What is the impact on you and your family if your goals

are not accomplished?

With these questions in mind, take another look at your

Savings Goals Work Sheet (Step 5) and at your Budget

Work Sheet (Step 3). Make adjustments in both until your

actual savings is equal to your goal savings. When you have

completed your adjustments, you should have a savings

plan for the current year and a forecast for your future.

Its important to repeat this exercise annually and adjust

as appropriate. If your income increases for example, if

you receive interest and dividends, unexpected bonuses or

nd other ways to accelerate your savings then you will

be able to accelerate your progress toward your goals. Be

prepared to modify your goals if you suffer a setback. Thekey is to remain exible.


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STEP 6:

plan ahead Now that you have completed youranalysis, it is time to create your action

plan. This means refining both your

savings plan and your investment

plan to optimize progress towardyour financial goals.

Your Savings Plan is essentially a commitment

you make to yourself regarding both the amount

you plan to save and the method you will use to

save it by month and per year. An effective

savings plan begins by writing out these basic

elements:

Your savings plan


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Start saving early. The earlier you begin, the more

money you can potentially accumulate.

Amount to be

saved this year

Commit to specic savings methods. Establish

an automatic savings plan, such as having

money deducted from your pay or your bank

account and deposited in a savings account.

Describeyour methods

Watch your expenses; save any pay increases.

Either put the money into your retirement plan or

into another savings plan. Watch your expenses;

save any pay increases. After your emergency

fund is established, direct savings to your

employer sponsored plan taking full advantage

of any employer matching contributions before

saving for non retirement goals.

Amount to besaved each month

Next, examine your nancial goals (listed in Step 1) to

determine whether each is a short-term (less than three

years), intermediate-term (three to seven years) or long-

term (more than seven years) goal. This will be determined

by the length of time you have until the goals target date

or until you will need the money allocated to that goal. For

example, if you want to save for a childs college education,

and the child is 8-years old,that would be a long-term goalthat you want to start saving for right now.

For each of your goals, consider how much investment

risk you are willing to take for the goal, given its timeframe.

Do you want to set up a simple savings account, or a

longer-term investment in something like stocks or bonds?

Generally, the riskier an investment, the more it uctuates in

value. Generally, its potential return may be greater, but so is

its potential loss.

To determine how much risk you are willing to take for each

of your goals, consider the following:

How essential is the goal?

How long before your savings will need to be allocated to

the goal?

Can you afford to lose any or all of the money you

are investing?

Do you want to protect that money even if it means

potentially lower returns and not accomplishing 100

percent of the goal without saving more?

A nancial professional can help you set up an investment

plan that matches your resources, goals and risk tolerance.

This option is discussed in the next step.

Your investment plan

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STEPY i l l j lik l ld


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STEP 7:

update

A good time for your annual review is when

preparing your federal income tax return,

because you will have your nancial records

readily available.

Evaluate your life-long goals and anticipate the

following economic factors that affect your plan:

Rate of ination

Your federal income tax bracket

Interest rates

Overall economic conditions and the impact

these have on your current nancial situation

Assess your resources and update your work

sheets, so you can see what adjustments you

need to make to stay on track with your

nancial plan.

Your nancial plan, just like your real-world

nancial situation, is subject to change.

Make it a point to review your nances

and adjust your goals and plans for

reaching them at least once eachyear and at signicant life events

such as marriage or divorce, the birth

or adoption of a child, a job promotion

or unemployment, the purchase of a

home or other property, relocation,

or the death of a spouse or heir.

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C id f i l


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Consider professionalassistance

Many things can interfere with your ability to initiate a

solid nancial plan and for many people, choosing

the right investment plan is pretty intimidating. You may

want to consider working with a CERTIFIED FINANCIAL

PLANNER(CFP) practitioner if:

You want to improve your overall nancial situation

but do not know where to start.

You would like a professional to evaluate your

existing nancial plan.

You need nancial advice on investment, risk

management, or estate planning strategies.

You need nancial advice that addresses changing

family circumstances.

You have experienced a signicant life event.

You do not have time to build your own nancial plan.

You need help balancing multiple goals and

limited nancial resources college planning vs.

retirement planning.

SELECTING THE RIGHT FINANCIAL PLANNER

Dont be afraid to ask questions:

Ask people you respect for names of nancial planning

professionals they have worked with.

Ask about the nancial planners background and

work experience.

Ask the planner as many questions as you need to

understand and feel in control of your nancial future.A true professional will encourage questions and show

interest in tailoring a plan to meet your needs.

Facing the futurewith confidence

Financial uncertainty can cause worry and needless stress.

Using these recommended seven steps to understand your

nancial situation and plan your nancial future may seem

intimidating at rst, but ultimately, it can lead to true peace

of mind. You may not be any richer, but knowing where your

nances stand right now, where you would like to be, and

what resources you have to make that possible, will help

you face the future with condence.

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f


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Making Money Work For You

Financing College

Managing Credit And Debt

Buying Or Renancing

A Home

Basic Investing

Planning For Retirement

Managing Assets AndExpenses In Retirement

can help you look out for the

best interests of your family or

organization with useful,

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