Wealth Care Kit: A Consumer's Guide to Establishing and Maintaining a Financial Wellness Plan1. 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. 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. “
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. 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. 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 ______
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4 © 2001, 2005, 2009
National Endowment for Financial Education