Starting a Financial Plan

The first step to creating your financial plan is to create a Personal Financial Statement (PFS)

No, this is not a spiritual mission statement – I promise you it’s a real tool you can see and touch.

The PFS is simply a current allocation of your assets and liabilities; it looks just like a balance sheet. This financial statement is a really powerful tool because it’s impossible to create the financial path to the goals of tomorrow without knowing where you start off today. Another benefit is when your entire financial universe is right in front of you and shown numerically, you can assign each line item a purpose so that you are equipped with the right mindset to make decisions that are worth something.

That’s it, starting off is that straightforward. A Personal Financial Statement helps define point A so that you can get to B.

A couple of tips to get started below:

  • 1) Sample Personal Financial Statement
  • 2) Internal Conversation Starters

Sample Personal Financial Statement

Please remember this is just a sample, not a representation of a healthy statement or based on any real information (I made this up on the spot while thinking about if/what I should eat for second lunch #Quarantine2020). While it may make sense to initially build your ideal version in Excel, there is a lot of financial technology out there already that helps you build and maintain your PFS with more efficiency. Just like your investment accounts, this isn’t something that needs to be checked on daily but once a quarter is about right

I like to break out the allocation by liquidity, but you may prefer to do this based on goals, tax status, or maybe even time horizon. Experiment, see what works for you.

Internal Conversation Starters
So you’ve created your first PFS. Without asking questions and providing context, it probably doesn’t mean much to you. Here are some questions to ask yourself and color it in.

  1. Which assets need to do what to help you accomplish which goals?
  2. Which of your day to day actions are worth the cost financially to gain the life experience? How do you measure that?
  3. Is the debt worth the opportunity?

I hope this helps. Leave a comment and subscribe!

Compliance stuffs
Just remember, I’m not your financial advisor so the information may or may not best apply to your situation and you should get formal advice prior to doing anything. The information/data that is shared should be double checked by you and any conclusion that is driven based on past data is not to be interpreted as my advice for your future. I will do my best to only write what I think is true and right, but mistakes happen and we’re all learning together – this is meant to be a conversation. My employer has nothing to do with this blog – in fact, they’re probably upset I’m writing here instead of working.

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