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You are here: Home / Columnists / Creating a Winning Financial Plan, Part I

Creating a Winning Financial Plan, Part I

April 29, 2022 By quadcities Leave a Comment

A financial plan starts with the basics and builds from there.

Many people wonder why they do not win from a financial aspect in life. The number one reason is they lack a winning financial plan. The saying goes, “If you fail to plan, you plan to fail.” The following will help you begin to develop a winning plan. When you have a plan, you have a goal. With a goal, you will begin to develop methods to arrive at your goal. I always like to develop several ways to achieve my goals. How about you?

Wealth Management

So you say that a financial plan is wealth management, but what if you are living paycheck to paycheck? Statistics show that 78% of American households are on that cycle of just making ends meet. How can having a financial plan be wealth management if we are just making ends meet? There is your first step. Create a plan to develop your wealth and before you know it, you will be managing your wealth. Yes, it is possible. Just like magic, one piece at a time, building upon each other.

Net Worth

All goals need a method to measure your progress. The standard method to measure wealth is net worth. What is net worth? Simply put, it is what you own, less what you owe. For example, let’s say you have a car that is worth $10,000 (you can get someone to pay you that amount). So, the value is $10,000, less the $8,000 you owe the bank, so the net worth of the car is $2,000.

Do this for all your assets. List everything you own in one column, then list everything you owe to someone else. Add up each column then subtract the owe column from the own column.

How did you do? Is the number positive? If so, you have a good start. Many end up with a negative number, which means they owe more than they own. No worries. Everyone needs to start someplace. Now it is time to begin to develop your winning financial plan.

Essential Building Blocks

As with any plan, you must begin with the essentials. A financial plan starts with the basics and builds from there. Two foundational strategies must be put into place. They are budgeting and debt management. Once these are in control, you can begin to expand into the strategies for building a winning financial plan.

Budgeting

Do you have a monthly budget? If so, great. If not, it’s time to get busy. Why do you need a budget? It will organize your spending. What do you spend your money on? Is it all necessary? What can you cut out? Are you providing for the four walls?

The four walls are food, utilities, rent and transportation. Once these are taken care of you can build in the other items in your budget.

Now begin to list out your other expenses including everything you spend your hard-earned money on. List it all down. Now, add it all up. Is it less than you bring home? If not, you have some work to do. The objective is to spend less than you make. You will need money to invest for retirement. How about an upgrade on your car? And if you have debt payments, they rob your dollars for other spending.

Do you have a spending problem or an income problem? Either can be fixed.

Debt Management

Some folks like to manage their debt, such as a loan for their cars, student loans for their education, a mortgage for their home or a credit card debt for Christmas, all with payments eating into your budget. But, no worries, you have the best education, a great car, a fine house and everyone got great Christmas gifts.

For me, the best debt management is no debt. Once you have eliminated your debt payments, you begin to free up money in your budget.

The short answer is to pay cash and stay away from debt and you will find you can afford more. The average car payment is about $450 per month; what would your budget look like if you owned your car?

To sum it up, debt management needs to be debt elimination. The quicker you can become debt-free, the more you will have to build wealth.

To get started today, put these basic building blocks in place. Next month, we will have part II of “Creating a Winning Financial Plan.” You will be able to continue to build yours.

What do you think? Will you do it? What do you have to lose? What are you doing now that is not working?

You work hard for your money make sure it stays your money!

Thanks for reading. I hope you found this helpful. QCBN

By Steven Calabrese

Steven Calabrese, CPA, is the CFO of Polara Health. He also is the owner/operator of a website known as thebiweeklyadvisor.com, where topics such as budgeting, investing, paying off debt and goal setting are discussed.

Filed Under: Columnists Tagged With: budgeting, financial plan, investing, paying off debt, Polara Health, Steven Calabrese

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