Financial Planning

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Financial Planning

Understanding the net worth of an individual form the foundation of the person's financial plan as it first and foremost provides a clear picture of what an individual's financial health is; this understanding then informs the kind of goals that are set and the priority of each goal in the individual's financial plan. Furthermore, budgeting ensures that the goals listed in the financial plan are adequately adhered to. Additional details on the importance of financial goals, net worth, and budget in financial planning have been detailed below.

Net Worth

  • An individual's net worth is akin to a business's balance sheet; it is the value of an individual's assets minus their liabilities or debts. It gives a glimpse of how much a person "would have left over today if they had to cash everything out and pay all their financial obligations such as mortgage, student loans, and credit card debts."
  • Understanding an individual's net worth value provides the foundation and the basis for the goals that would be set in the financial plans. It informs the next step of action for an individual and can be actual proof of a person's financial health.
  • Understanding the net worth of an individual form the foundation of the person's financial plan as it first and foremost provides a clear picture of what an individual's financial health is.
  • It then informs what exactly needs to be done to turn around a negative net worth as it shows exactly where the loopholes are and what is consuming the individual's money.
  • An individual can also use their net worth as a measure of their financial growth and to see if their current financial plan is working or if they need to refocus or rechannel how they spend money.
  • Additionally, individuals that have a good grasp of their net worth can refocus their financial emphasis beyond income as well as "wake the individual up to the downside of debt instead of just emphasizing assets."

Financial Goals

  • After understanding their net worth and getting a clear picture of their financial health, the next step is to set realistic goals based on the information garnered during the net worth phase combined with other relevant financial information; these financial goals can either consolidate the progress that has been made in building a positive net worth or reverse the trend of a negative net worth.
  • Setting financial goals forces an individual to be disciplined and also forces them to prioritize. With an end goal in mind, it is easier for the individual to adjust their appetite for things that are not of immediate importance.
  • These goals can either be short-term, mid-term, and long-term in nature and every financial plan has all three kinds of goals. The individual's current financial health will determine which bucket (the type of goal) is given the most priority per time.
  • Examples of short-term goals include establishing a monthly budget, building an emergency fund, and paying off credit card debts, while examples of medium-term goals include getting life insurance, paying off student loans, and building towards the person's dreams. On the other hand, typical long-term goals involve thinking about retirement and child education.
  • Financial goals also change as a person's life and financial plans change. As Investopedia puts it, individuals "probably won’t make perfect, linear progress toward achieving any of their goals, but the important thing is not to be perfect but to be consistent."


  • An individual's cash flow is an important part of their finances and is an important tool to understand a person's financial health. Cash flow details "what’s coming in every month versus what’s going out." According to Lauren Zangardi Haynes, a financial planner, "Individuals might be shocked at how much money is slipping through the cracks each month."
  • An easy way to ensure money is not slipping through the crack is through budgeting, as every dollar counts in a financial plan.
  • Also, after identifying an individual's financial health and developing goals to improve it as detailed above, it is through proper budgeting that these goals can come to pass. Budgeting also ensures that the goals that have higher priority according to the current financial plan are captured in the monthly expenses as they ought to. For example, an individual looking to build their emergency fund know they have to put aside a substantial sum every month for the next 3-6 months to achieve this purpose.
  • Budgeting also blocks leakages and ensures every cent is put into proper use. Budgeting also ensures that the money coming in is channeled towards the right financial goals as detailed in the financial plan.
  • Having a budget also keeps an individual within the confines of what they earn, so they don't end up spending money they don't have. Simply put, budgeting can curb bad spending habits and make more funds available towards an individual's financial plan.

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Financial Planning for Retirement

Best practices in financial planning and investing for retirement include determining financial needs and income sources, as well as developing a plan for paying off debt. Retirement planning should also involve considering healthcare options and any potential costs related to medical expenses. Individuals should also consider making investing for retirement fun instead of a chore. For the purposes of this research, "best" is defined in terms of media coverage.

Best Practice #1: Determine Financial Needs and Income Sources

  • The Balance, Business Insider, and CNN are examples of credible publications that stress determining financial needs and income sources as a best practice in planning and investing for retirement.
  • This strategy involves calculating exactly how much will be needed in terms of money and assets for a comfortable retirement. Individuals can use virtual tools like the handy retirement calculators provided by NerdWallet and SmartAsset to assess their current financial situation and figure how much they need to save.
  • Another part of planning for retirement is determining income sources. Investing in a 401(k) or IRA account is one good option, but individuals should consider multiple income streams in case any one source dries up.
  • Social security and personal savings accounts may not be enough to cover retirement expenses. A diversified investment portfolio means additional income sources and can provide financial security and peace of mind.

Best Practice #2: Consider Healthcare Options

  • The Balance, CNN, and Business Insider are examples of credible media sources that cite healthcare and medical cost considerations as an essential part of developing a financial plan for retirement.
  • According to Business Insider, retired couples can spend over $10,000 in medical costs during their first year of retirement alone. An important strategy in retirement planning is anticipating any costs that Medicare does not cover like deductibles and copayments. Prescriptions might also be an out-of-pocket expense.
  • Retirees might need supplemental insurance like Medigap to cover costs that Medicare will not. This will require an additional monthly premium payment and still might not cover expenses like dental or vision.
  • Individuals may also want to consider ways they can keep themselves healthy as part of their retirement planning. Good health can lead to lower medical bills.

Best Practice #3: Develop a Plan for Paying Off Debt

  • The Balance, Business Insider, and CNBC are examples of credible publications that recommend developing a plan for paying off debt — high-interest debt in particular — as one strategy in financial planning for retirement.
  • According to CNBC, 40% of US retirees consider paying down debt a major concern during retirement. Of this group, 30% are worried about credit card debt, 17% are focused on mortgage debt, and 11% are burdened by other debt like medical bills.
  • Business Insider notes that high-interest debt in particular can eat away at savings and "wreak havoc" on personal finances if consumers are still paying it down into retirement.
  • Paying off debt can provide individuals with the financial freedom they need to fully enjoy their retirement years.

Best Practice #4: Make Retirement Saving and Investing Fun

  • The New York Times and NerdWallet are two trusted media sources that suggest making retirement saving and investing more entertaining and less of a chore.
  • Some investment firms have developed online games that foster a sense of healthy competition while helping Americans invest for retirement. Millennials are the largest demographic taking advantage of these retirement-investment games.
  • NerdWallet recommends turning retirement savings into a personal game complete with rewards and milestone celebrations.