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Creating a Financial Plan 1 – GO, Net, Flow

ByFreeman Linde, CFP®

The Secret of Getting Ahead in Life is Getting Started ~ Mark Twain

Before you can plan financially where you want to go, you first must determine exactly where you are. To do that you need GO, Net, Flow. That is:

  1. Get Organized
  2. Determine Net Worth
  3. Control Cash Flow

Get Organized

First, get organized. Knowing where everything is and having quick and easy access to it will make the rest of financial planning much easier. You’ll want to organize in two areas: accounts and files.

Accounts

The easiest way to do this is with a account aggregation software. You can connect all your retirement, banking, investment, and insurances accounts. They will update automatically and keep you informed on your finances, all in one place.

We recommend RightCapital. For a limited time, we are providing free access through LaxFP. It allows you to easily connect your accounts and provides a one stop dashboard for your plan. Best of all, it’s ad-free and free to use.

There are other paid and ad supported softwares you can find as well. Whichever you choose, do the work of establishing online access to you accounts and connecting them once, and it will reduce you ongoing work.

Files

Finances have files. From statements, to information, to benefit summaries, to policies, to tax forms, there are a lot of documents and files related to your finances.

Create an electronic file system to easily and securely access your files.

OneDrive, by Microsoft, works really well for this purpose. It’s already built into Windows devices, and can be download free on Mac as well. In our experience, it is better than Dropbox, Google Drive, iCloud Drive, and Box. It has a better free version, and is much faster at syncing.

If you have a Microsoft 365 subscription (to use Microsoft Word and Excel), then you have 1 terabyte of space, which is astronomical. Otherwise you can sign up for free and get 5 gigabytes. That’s not enough to store all your photos and videos, but is sufficient for financial files.

The beauty of OneDrive (and similar) is that files are stored locally on your computer and in the cloud. Therefore you can access your files even when you don’t have internet access, and you can access them through any other device by logging in. All your files are already backed up.

Another benefit is mobile app as a scan feature that lets to scan paper documents and upload them directly to your OneDrive folder as PDFs. So you can save and shred paper documents you still get in the mail. No more paper clutter!

And you can securely share your files with your financial planner or tax preparer if you use one. NOTE: All online systems have some risk of being hacked. And your house has some risk of being broken into. So in our opinion, while we certainly aren’t guaranteeing your files are perfectly secure in OneDrive, we believe they are as secure there as anywhere else if you take the right precautions (such as having a password on you computer).

We recommend making five folders:

  1. Accounts
  2. Insurance
  3. Tax
  4. Employer
  5. Estate

Start downloading financial files you get to these folders and scanning in important documents you get in the mail. This will reduce clutter and make your forms and files easy to find in the future.

We will refer back to these folders in future posts.

Net Worth

Net worth is not the same as human worth. Let’s all agree on that.

For financial planning though, it becomes a snapshot in time of how we are doing.

Net Worth = What you Own – What you Owe. 

We want that to be a positive number. If it isn’t yet, we’ll work toward making it positive. If it is already, let’s make it more positive.

If you’re using RightCapital, this number will be automatically calculated for you after you’ve added all your accounts. Step done!

HINT: Once you’re organized, every other step of the financial process is easy.

Cash Flow

Cash Flow in Income and Outgo. Like breathing, it is essential to the life of your financial plan.

The first step is to be aware of it. How much money are you actually making? We want to know this at three levels:

  • Gross Income – How much you make directly from your employer before any taxes come out.
  • Net Income – How much you have left after taxes.
  • Take Home – How much hits your bank accounts after all your benefits and other deductions are subtracted.

Your Paystubs are the best place to find all three of these numbers. You may find that you have more coming out in specific areas than you thought. Perhaps you don’t need that pet insurance through work…

Hot tip: Save your paystub to your Employer folder in OneDrive. Now you have easy access.

You’ll also want to track expenses. If you are using RightCapital, there is a section of the app and site that tracks your spending for you.

We recommending tracking our expense for at least two months. It will be eye opening to see exactly where your money is going.

We’re not at the recommendation stage yet, so let’s not get to worked up or worried about what to do with your cash flow awareness. That comes later. Stay tuned for next steps on Creating a Financial Plan.

Action Steps

Nothing improves in your life if you don’t take action. Here are two steps you can take right now to improve finances. Carve out 30-60 minutes to get this done.

1. Connect Accounts

Sign-up for a RightCapital account or some other account aggregator and connect your accounts. Be sure to find all your (and your spouse’s) accounts that fall into these categories:

  • Bank – Checking and Savings accounts.
  • Liabilities – Student Loans, mortgages, auto loans, credit cards, and others that may not be at your bank. 
  • Employer Plan – Current and past 401(k), 403(b), or 457 plans and pensions. 
  • IRAs – Traditional and Roth IRA accounts.
  • Brokerage – Investment accounts you may manage or that are with an advisor.
  • Other Assets – May need to be added manually, such as the value of your home.

2. Organize Files

Get a OneDrive account and create the five folders. Find and save the following files into those folders (and your spouse’s files, if applicable):

  • Accounts
    • Investment/Retirement Accounts – Save the most recent statement for each.
    • Banking/Liabilities – Save a mortgage statement, a photo of a voided check, and any other loan statements. It is usually not necessary to save checking/savings account statements.
  • Insurance
    • Home & Auto – Save your “Declaration Page” for each. 
    • Life, Disability, & Long-Term Care Insurance – Save a digital copy of your policies. If you have a cash value life insurance policy, save a recent statement (and listen to episodes 14-20 of the RetireMentorship podcast). 
    • Health Insurance – Save your summary and any other policy documents you have (such as outline of benefits).
  • Tax
    • Tax Returns – Save last two years of tax returns
    • Tax Documents – During tax season, you’ll save all your W2s, 1099s, and other tax documents you receive here.
  • Employer
    • Benefits Summary – Most employers have a summary of all the benefits you are getting from them. Save that here.
    • Paystubs – Save your two most recent paystubs. 
    • Other Docs – Any other documents you receive from your employer can also be saved here.
  • Estate – Save a copy of each of these documents
    • Trust
    • Will
    • Power of Attorney for Finances
    • Health Directive/Advance Directive/Living Will – These are all the same thing by a different name. 
    • Estate Summary – Summarizes your estate plan as well as your beneficiary and TOD instructions. 

If you complete these two steps you’ll be set to start building your financial plan. Connecting your accounts and gather these files now will make each of the next steps much faster and easier. So carve our 30-60 minutes to get this done. You will feel much better having everything organized.

3. Take the Financial Planning Score Quiz

If you complete steps 1 and 2 first, you’ll get a higher score on the quiz. Taking the quiz will help you see where you are with Financial Planning, and will help you know especially where you need to be paying attention to this series and creating a Financial Plan.

The next step is to create an Investing Plan. Your investments fund the rest of your plan, so getting those correct will work wonders in your life. Stay tuned. 

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are the opinions of the people expressing them. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. RetireMentorship is not affiliated with any Registered Investment Advisor, Broker-Dealer, or other Financial Services Company.

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