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Marion Syversen Marion Syversen
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The deliciousness of your very own financial plan

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A financial plan covers your entire financial picture: your assets and liabilities, your risk management, your financial goals and whether or not they are realistic. Financial advisors offer plans, and because they are so extensive, there is a cost to have one developed for you. Here are some of the parts that comprise a good financial plan.

Net-worth - a net-worth statement shows the difference between your assets and liabilities. Listing your assets means compiling the estimated but accurate- value of house, camp, cars, business. And then adding in your 'liquid assets' CDs, investment accounts whether retirement or individual/joint accounts held, savings and jewelry, coins and other hard assets. 

From that total amount subtract your total liabilities: loans on real estate and other property, all consumer debt such as credit cards and student loans. The NET result, hopefully positive, is your net-worth.

Debt-to-Income ratio - This is a simple calculation. Add up all your monthly debt payments: mortgage, consumer debt, child support - everything you need to pay each month. Then add up your monthly income. Divide your income by your debt. Here's an example:  You pay $500 a month and you earn $2,000 per month: your debt to income ratio is 25%

Cash flow/Budget  Cash comes in and then it is allocated for various purposes: housing, debt repayment, savings, life. Tracking the saving and spending of money is a cash flow statement or a budget. You need one to create a financial plan. You need one if you ever hope to have a positive net-worth.

Risk analysis  Depending on the results of your net-worth statement and your budget and the existing and various insurances you have, you are now able to determine if where you or your loved ones are lacking. Managing risk is what life insurance, professional liability insurance and personal property insurance is about.  If there is a gap in what you have compared to what you need you may want to fix that gap or face self-insurance. Self-insurance is when you use your cash to cover the loss entirely. If the cost of insurance is cheaper, I vote for additional insurance.

Debt repayment  When will your debts be paid off? Do you want to press forward with a more aggressive repayment plan? Where will you start and how much will you allocate to that priority? This is a personal preference. Just don't short-change your savings.

Savings plan  speaking of savings, please remember that the same compound interest that occurs with your debt and interest rate, occurs with any savings. Money saved and earning compound interest adds up more quickly as each period's principle and interest earns even more additional interest. That works like a lovely compost pile, cooking and growing as year after year passes. Compound interest is a very good thing.

It is all the parts of the plan that make it so tasty. It is seeing how your debt-repayment plan works with your savings plan. It is securing your risk management plan along with your cozy budget and cash flow that makes you feel like you have various scenarios covered. 

And though you cannot know the future or manage for every situation, having the bits and pieces of a great plan in hand provides a lot of peace. 

For more information on the benefits of a financial plan, check the internet or your local library for details. Or contact a financial advisor.

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