WEALTH CARE KIT                                                   SM             A consumer’s guide to establishing      a...
W E A LT H C A R E K I T    THE WEALTH                                  Wealth care, or effective financial      Financial...
“                                                 W E A LT H C A R E K I T    If you have positive net worth              ...
W E A LT H C A R E K I T    6. Enjoy the accumulation of    your wealth. Use your savings and                             ...
W E A LT H C A R E K I T    PERSONAL ASSETS & LIABILITIES WORKSHEET    Summarize your assets and liabilities using the wor...
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Wealth Care Kit: A Consumer's Guide to Establishing and Maintaining a Financial Wellness Plan


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Wealth Care Kit: A Consumer's Guide to Establishing and Maintaining a Financial Wellness Plan

  1. 1. WEALTH CARE KIT SM A consumer’s guide to establishing and maintaining a financial wellness plan. A website built by the National Endowment for Financial Education dedicated to your financial well-being.
  2. 2. W E A LT H C A R E K I T THE WEALTH Wealth care, or effective financial Financial Planner™ (CFP®) CARE KIT an planning, is a disciplined behavior, licensee or another financial much like health maintenance. It planning professional. INTRODUCTION isn’t difficult. Much of it is common sense—like knowing the difference Before moving to a specific between your needs and your wants. financial planning area, take your financial pulse. You plan your health. Most people have never taken the time to identify their objectives and SETTING GOALS You know it’s wise to get enough plan the steps necessary to First, determine your goals. Goals exercise, eat the right foods, and attain their goals in a timely and and objectives provide focus, monitor your cholesterol. You visit strategic way. Once these actions purpose, vision, and direction for your doctor each year to be sure become habits, you’ll be surprised the financial planning process. They your body stays as fit as possible. by how easy financial planning is must be clear, precise, consistent, and how rewarding it can be. The and measurable. You first need to But when was the last time you decide on a time frame to determine reason NEFE developed this planned for your wealth? Have whether your goals are short, “Wealth Care Kit” is to demystify you monitored the condition of intermediate, or long term. You the financial planning process and your investments, taken a want to set a time frame for two to assist all Americans in managing preventive approach to taxes, and reasons: to establish the length of their money to enrich their financial flexed your retirement planning the commitment by making the goal well-being and the quality of muscles? And when did you last measurable, and to enable you “ their lives. visit a financial planner to get a to calculate the amount of savings professional assessment of your Within this kit, you’ll find overviews required. How long until you can financial well-being? This may be of five specific financial planning pay off your credit card balances? a situation you don’t like to deal areas: insurance, investments, How many years before your child with, but it’s safe to say that Uncle income tax planning, retirement begins college? How many more Sam isn’t likely to step in to help planning, and estate planning. years will you work before retiring, you anytime soon. and what is your probable life span? Then set a dollar amount—the It’s time for a wealth-care money you’ll need to pay off the check-up. credit card balance, finance school, Many of us spend time thinking YOU’LL BE SURPRISED and fund your retirement. about money—mostly about how to pay the bills. But too few BY HOW EASY DETERMINING YOUR NET WORTH AND CASH FLOW Americans focus on what they want to achieve in life and how to fund their longer-term goals and objectives. You don’t need to be wealthy to FINANCIAL PLANNING IS AND HOW REWARDING IT CAN BE. “ After identifying your needs, time frame, and potential costs, begin the planning process by determining your net worth and cash flow. To calculate your net worth, add develop a good financial plan—but your assets, total your liabilities, you may improve your situation if and subtract your liabilities from you stick to one. At least you’ll be Each section includes a checklist your assets. What remains is your able to protect your retirement nest or worksheet to assist you in taking net worth. (See the worksheet on egg, keep the IRS from taking too control of your finances. You can page 4.) Your net worth drives the big a tax bite, and have enough use this material to organize your financial planning process. For money to finance your children’s financial information for your example, one of your goals may college education. personal reference or for be to increase the asset side of professional use by a Certified the balance sheet while reducing your liabilities.1 © 2001, 2005, 2009 National Endowment for Financial Education
  3. 3. “ W E A LT H C A R E K I T If you have positive net worth ment fund to have a fixed amount (where your assets exceed your transferred within a day or two after liabilities), your money is working you are paid. for you. But there may be more you can do with it, such as putting 2. Start off easy. To begin, you more of it into investments or WEALTH CARE may want to deposit only the setting aside extra funds for retirement. If your net worth is small, or even in the red, it’s time to tackle debt and build your cash reserve and investments. IS A DISCIPLINED BEHAVIOR, MUCH LIKE HEALTH MAINTENANCE. “ minimum amount required by the plan you select. The amount is less important than just getting started— the habit of saving is what is critical here. You can gradually increase the amount you contribute. To determine your cash flow, make a list of all income sources and 3. Work up to your optimal expenses for a typical month. Total savings rate. Once you are your income and expenses and then compact disc, or soda you accustomed to the savings habit, subtract the total expenses from the purchased. After totaling these fine tune your savings plan to reach total income. If there is a positive expenses, multiply this figure by your financial goals. Set dates for balance, you have a net positive the number of months for which when you would like to accomplish cash flow (also called discretionary you’d like an emergency fund to these goals and work backward to income) that can be used, along sustain you. figure out how much you need to with funds already accumulated, to save monthly to reach them. Many Then calculate the total amount financial planners recommend accomplish your goals. If the of liquid assets you have, either in savings of 5 to 10 percent of your balance is negative, you will need to cash, savings accounts, or liquid income, but the exact amount is work at reducing your expenses investments, such as money market based on individual goals. and/or increasing your income to funds and accounts. Finally, achieve a net positive cash flow. 4. Stick to your plan. Add to your subtract the amount of the desired Otherwise, it will be very difficult, savings each time you are paid and emergency fund from the total if not impossible, to accomplish don’t let minor setbacks keep you liquid assets. If you have liquid your goals. from your schedule for meeting your assets remaining from this figure, ESTABLISH AN your assets are sufficient. If you are financial goals. If you have a minor EMERGENCY FUND lacking liquid assets, additional emergency, you may need to modify You also will want to make sure that savings should be put away your savings plan temporarily or use your assets are easily accessible. to reinforce your liquidity. an emergency fund that is already Financial planners generally established, but resume your The following steps offer some help savings habit as quickly as possible. recommend having the equivalent in adding to an emergency fund in cash of three to six months’ worth 5. Measure your progress. or in establishing savings by paying of fixed and variable expenses in Maintain records of savings/invest- yourself first: case of emergency. To calculate this ment plans to keep track of exactly amount, take your total net income 1. Choose a convenient savings what you have and the activity in for three to six months and subtract plan. Have your employer deposit your account. Periodically, review the amount you saved during the a portion of your paycheck into a how you are progressing toward same period. Or, if you prefer, savings/ investment account. Or your financial goals—in just a short track your total monthly expenses. you can have your check directly time, you’ll see a big difference in Expenses include everything: deposited to your bank account and your savings balance. mortgage or rent, car and related have the bank automatically transfer expenses, credit-card payments, a portion to savings. Another idea: groceries, insurance, and utility deposit the check yourself and make bills. Also add in every lunch, arrangements with the bank/invest-2 © 2001, 2005, 2009 National Endowment for Financial Education
  4. 4. W E A LT H C A R E K I T 6. Enjoy the accumulation of your wealth. Use your savings and • Find out what you can expect. Clarify the extent of written advice, About NEFE investments to pay for the goals numbers of meetings, availability The National Endowment for you’ve set. Don’t grow so enamored for special counseling, and whether Financial Education® (NEFE®) of your bank statement that you are you will be expected to purchase is a nonprofit 501(c)(3) foundation reluctant to spend for the goals you investments or financial products dedicated to helping all Americans established. Do, however, continue through the planner. acquire the information and gain the with your program—you’ll enjoy the • Ask for references from clients skills necessary to take control of benefits for years to come. with similar situations to your own. their personal finances. NEFE After you’ve mastered this basic Then check those references. accomplishes its mission primarily principle of paying yourself first, by partnering with other concerned • Request names of allied profes- organizations to provide financial you are ready to take on new sionals, such as accountants and education to members of the challenges in the other areas of attorneys, if your needs encompass public—in particular, to under- financial planning. Work through tax planning and creating or served individuals whose financial the five areas and see what progress updating a will. education issues are not being you can make. On the other hand, not all of us want to learn the details • Discuss how the planner is addressed by others. These partner- of financial planning. That’s where compensated for services: fee, ships are an effective means of professional assistance may help. If fee-and commission, or commission responding to the needs of many using a financial practitioner is for only. Make sure you are comfortable different groups within the general you, the following tips can help you with the compensation method. population. identify a knowledgeable, ethical Also, make sure the planner is In all of its partnerships, NEFE financial planner. genuinely interested in your needs, functions as an active participant not just in selling financial products. by providing funding, as well as the • Interview at least three financial planners before selecting one. Ask • Finally, be sure you select a logistics support and financial for recommendations from your planner who does not categorize you planning expertise needed to create friends, business associates, or offer you the same plan provided personal finance programs and or professional organizations. to every other “single parent,” material for the public. NEFE also “rising young professional,”“soon- underwrites grants, fellowships, • Look for a financial planning and research projects; and it to-retire-executive,” “recent widow,” license or credential, amount of facilitates the exploration of new etc. Choose someone who sees work experience in financial ideas in the field of personal you as an individual and who will services, membership in financial planning by sponsoring address your specific needs. professional organizations, events for professionals throughout and licensing in areas such as the financial services industry. investment advice, securities, To learn more about the National or insurance. Endowment for Financial Education • Ask the planner how he or she (NEFE) visit our Web site at keeps up to date on changing www.nefe.org. financial regulations. • Look for compatibility. Do you get along personally? Do the planner’s background and strengths match your needs? If you have a specific financial planning concern— retirement or estate planning, for instance—find out if the planner has expertise in that area.3 © 2001, 2005, 2009 National Endowment for Financial Education
  5. 5. W E A LT H C A R E K I T PERSONAL ASSETS & LIABILITIES WORKSHEET Summarize your assets and liabilities using the worksheet below. Prepare this statement at least once a year to determine your financial status. Be realistic in valuing assets and use your records to get an accurate picture of your liabilities. ASSETS LIABILITIES 1. Cash 1. Short-Term Debt • on hand ______ • credit cards ______ • savings/checking ______ • utilities due ______ • money market account ______ • personal loans ______ • cash value of life insurance policies ______ • rent/mortgage due ______ 2. Fixed-Income Investments • income taxes due ______ • CDs • local/property taxes due ______ • government securities/funds ______ • insurance premiums due ______ • mortgage-backed securities/funds ______ • other • corporate bonds/bond funds ______ 2. Intermediate-Term Debt • municipal bonds/bond funds ______ • education ______ 3. Investments • vehicle(s) ______ • stocks ______ • home equity loan/line of credit ______ • mutual funds/ETFs ______ • other ______ • collectibles ______ 3. Long-Term Debt • limited partnerships ______ • personal residence ______ • other ______ • vacation property ______ 4. Real Estate Investments • rental property ______ • undeveloped land ______ • undeveloped property ______ • directly owned, income-producing • other ______ property ______ • real estate investment trusts (REITs) ______ Total Liabilities ______ 5. Personal Assets • personal residence ______ CURRENT NET WORTH • automobile(s) ______ Total Assets ______ • jewelry ______ Total Liabilities ______ • household furnishings ______ • vacation home ______ Current Net Worth ______ • other ______ 6. Business ______ 7. Retirement-Oriented Assets • IRA (Traditional/Roth) ______ • Keogh ______ • 401(k), 403(b) ______ • employee thrift/stock purchase plans ______ • annuities ______ • company (vested in pension, profit sharing plans) ______ • other ______ 8. Other ______ Total Assets ______ National Endowment for Financial Education, all rights reserved. CFP and CERTIFIED FINANCIAL PLANNER are federally registered marks of the Certified Financial Planner Board of Standards, Inc.4 © 2001, 2005, 2009 National Endowment for Financial Education