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Financial Planning Process You can't realistically do any long-term financial planning until you get out of debt.Taking charge of the Financial Process
Send us an email request and we'll help you with each step of this process including incorporating, setting up your books, getting registered with the IRS, setting up your payroll, etc. brettsloan@accountingadvisors.org. FINANCIAL PLANNING PROCESSREDUCE EXPENDITURES This may seem self-evident, but many people avoid facing reality and refuse to cut their level of expenditures. Do you really need to maintain as high a standard of living as you currently have? Is it possible that some of your "needs" are really "wants" instead? Can you find places to trim expenditures even on items that are necessities? Would moving into less expensive housing, for example, ease the financial pressures in other areas of your life? Are there other changes that might cut costs as well or better? Typical categories that warrant scrutiny are:
Curtailing credit card expenditures is especially important given the high cost of this kind of debt. PAY OFF CREDIT CARD DEBT The next step is to pay off your credit card debt. Eliminating this kind of debt does more than just take a heavy burden off your finances; it's actually equivalent to earning a significant investment return. For instance, if you pay off a credit card balance that racks up interest at a 15% rate, liquidating that debt is like earning 15% on an investment. Paying off that debt would, of course, be an important step to take before investing your money in ways that offer lower yields. If you invest money at 7% while paying 15% on service debt, you're still losing the 8% difference between your debt and the investment. Tolerating that level of loss doesn't make much sense. Pay off the debt first. If you're unable to pay off your credit card debt only over the long haul, consider doubling up payments to diminish the monthly service charges. The faster you pay off the debt, the lower your overall cost. CONSOLIDATE OR TRANSFER DEBT If you can't eliminate the debt altogether, you might consolidate your debts or transfer some or all of them to another creditor. This course of action won't eliminate debt, but it can make it cheaper. Here are some alternatives: Find a cheaper credit card. Obtain credit with a company offering a lower-rate card, then pay off the expensive debt with the cheaper debt. Obtain a home equity loan. This arrangement allows you to pay off the high-rate credit card debt, then service the lower-rate, tax-deductible loan at a considerable savings. One risk though: home equity loans have specific, rigid contractual terms that, if violated, can put your home ownership in jeopardy. SWITCH TO DEBIT CARDS Since credit cards often lead to excessive and expensive debt, you might try debit cards as an alternative. The advantages are obvious. Although a debit card won't stop you from spending, it will certainly prevent you from spending money that isn't in your account. The awareness of your balance can serve as a restraint. Keep in mind that purchases made with a debit card, such as flight reservations, don't carry the same insurance as flights purchased with a credit card. Also use caution when using a debit card with a hotel reservation. A portion may be temporarily held to cover a security deposit until you the room is cleaned and the amount may take several days to be refunded back onto your card. Asking the front desk of the hotel before the purchase will clear this up. Another great benefit of using a debit card for your purchases is that it will allow you to itemize all your expenses. Use your debit card for everything - even the small purchases: the sandwich at Subway, the movies, every lunch and dinner, and especially Blockbuster. Get several different colored highlighters and every two weeks print off your bank statement. Write the following categories across the top: gym, lunches, dinner, entertainment, gas, groceries, gas, haircut, and travel. These are usually categories that can be adjusted to reduce expenses. BORROW FROM YOUR FAMILY Hitting up your relatives for a loan may sounds simplistic, but it's worth considering. It's certainly a time-honored method for temporarily easing a debt crunch. Although not without risks - chiefly in the potential strain of relationships - this method can be an important alternative. Borrowing from your family doesn't necessarily mean that you borrow interest-free. You might, for instance, offer to pay interest at a level that splits the difference between an interest-free loan and the loan you're trying to liquidate. For instance, if you were paying off a credit card balance calculated at a 14% rate, the interest rate on the loan from your relative would be 7%. This would offer advantages to all parties involved. You'd cut the cost of the debt in half, and your relative would earn an interest rate considerably higher than in most current liquid accounts. No matter what terms you arrange, however, you should put the agreement in writing and make sure that everyone understands the terms. Back to TopBUDGETINGWhat do you do after you've assessed your financial situation, set some goals and you've started making detailed records of your expenses? The answer depends largely on what your recordkeeping reveals. You may find yourself in a position where your expenditures clearly exceed your income. The use of a debit card for all of your purchases will greatly help you with itemizing all of your expenses. Just because the initial budget starts with the historical record of what you've spent doesn't mean the focus is on the past. The budget is a benchmark for what you plan to spend. It is a changeable, relatively fluid document that may take several months to find realistic guidelines. Below is an example of a budget that we will set you up on: Remember, the keys to keeping close to budget are:
Even the best-designed budget is worthless if you ignore it. Back to TopBUILDING WEALTHSeveral steps are involved in this process. We will extensively walk you through each step in the process.
Back to TopPROTECTING YOUR ASSETSProtecting your family and assets through life insurance - 10 mistakes to remember:
Back to TopESTATE TAXES AND DEDUCTIONS"Nothing is certain except death and taxes," quoted from Benjamin Franklin. Estate planning is crucial as a means of providing for your family over the long term. We will handle this for you first by getting you started on the following steps:
We will also keep you from making the following common in estate planning:
Back to TopSTARTING YOUR OWN BUSINESSIf you've considered starting your own business - or perhaps going into business for yourself in some other way - you have many options to choose from. You can take your own idea, obtain funding, organize a company, and seek success on your own. You can purchase a franchise with a recognizably product, existing supply network, and uniform business procedures. You can become an independent consultant. No matter which route you take, however, you need to proceed carefully and consider all aspects of the situation before you commit yourself. We will help you explore the following aspects of going into business for yourself:
Back to TopBrett Sloan II |
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