Personal Financial Planning


Dr. D. Larry Crumbley, CPA, MFFA, CFF, CrFA
Dr. L. Murphy Smith, CPA
                                                                                                                                                   PFP-short stories

Are you good at controlling credit cards and other sources of debt? Are you successful at managing a household budget? Do you keep good financial records? Why can some people manage to save money? Are you aware of the simple ways to increase your net worth? Do you know the best investments for your financial situation?
 Most Americans spend most of their lives earning money, but they rarely spend any time planning how to use their accumulated capital efficiently. When they reach age sixty-five most people are flat broke. Income from Social Security is inadequate to support people at today’s rate of payment, and few observers can predict the future of Social Security.
 Systematic personal financial planning (PFP) should begin as early as possible in your career. Financial planning is both a process and an attitude. It should become a habit. Financial planning involves gathering all your financial and emotional data, analyze these data, and preparing a financial plan for the future. You must take action and follow the plan. Finally, you need to review the plan and make necessary changes as your environment and financial conditions change.
 The first step is to determine where you are now by preparing a balance sheet in order to determine your net worth. Your net worth is the excess of your assets over your liabilities. You must manage your cash in order to save some investment capital each month. A budget or cash flow statement will help you to determine your inflows and outflows. Reconciling your checkbook regularly is important for your financial security. It helps you review your expenditures and analyze areas where you might cut back if necessary, and of course it ensures that you and your banker agree about how much is available to you. Nonsufficient funds fees can be very costly.
 Next you need to determine where you wish to go. What are your short-term and long-term goals? Seneca said that "our plans miscarry because they have no aim. When a man does not know what harbor he is making for, no wind is the right wind." What are your objectives? To buy a new car? To educate your children? To prepare for retirement? To travel around the world?
 You must determine quantitative objectives and how you plan to reach them. These goals or objectives must be reviewed regularly. Did you meet your short-term goals? Are you progressing toward your long-term goals?
 Once you know your objectives, you now must prepare a plan or a roadmap for reaching them. Preparing a financial plan resembles doing a jigsaw puzzle in that many pieces must be put together to get a completed puzzle. These pieces, or variables, include budgeting, record keeping, tax planning, planning for inflation, selecting competent advisors, buying insurance, investing your capital, planning for education and retirement, and estate planning. Some of these financial planning puzzle pieces are constantly changing shape, especially those affected by law taxes. Tax laws can literally change overnight, at the whim of Congress. Any tax-related information in this book should be double-checked against the most current IRS rules and regulations.
 Although you, like many people, may have an overall goal of accumulating wealth, you must understand that there are many obstacles in your way. Among these are inflation, taxes, limited number of working hours, recessions, unemployment, injuries, procrastination, dishonest sellers – the list goes on. But you should realize that there are very few ways to accumulate real wealth. You must review these ways in our book, and understand the annuity concept, leveraging, employing people to work for you, and arbitraging.
 This book does not promote a get-rich-quick strategy. It does not offer a mishmash of euphemisms, hyperbole, and stirring testimonials. In fact, you should avoid the fast-buck ads that offer you a short road to riches. Consumers spend an estimated $50 million annually responding to offers of instant wealth. These "fantastic money-making plans" are often typo-laden, poorly written books or pamphlets that propose a variety of outlandish schemes for getting rich through real estate, mail-order sales, or telemarketing. These get-rich-quick promoters understand the rule about a fool and his money. Contrary to promoters’ claims, success and wealth are usually not obtained either quickly or easily. We follow Mark Twain’s advice about speculation. There are two times when you should not speculate: when you cannot afford to and when you can.
 Making wise investments is a process that requires specialized knowledge and careful planning. Picking the right advisors is not easy. You need to understand basic financial concepts; the concept of risk versus return is basic to any investment strategy. How safe is your principal? Diversification, dollar cost averaging, a parking lot for your idle funds, mutual funds, liquidity, and the umbrella of insurance are terms that you must understand.
 Do not wait too long to begin your retirement and estate planning. There are numerous aspects to consider. As you plan for retirement, are you socking away some of your monthly earnings into an Individual Retirement Account, a 401(k) plan, a Keogh plan, a defined benefit plan, or some other pension or profit-sharing plan? A small increase in your investment return inside a retirement plan can result in tremendous benefits at your retirement. Estate planning is really building an estate during your lifetime and passing it on to your heirs in a form that minimizes income and estate taxes. A will is essential; a prenuptial agreement may be important. You may wish to consider using trusts to avoid taxes and to carry out many business and nonbusiness objectives.
 Personal financial planning is complex. It is time-consuming. It can be frustrating. Financial planning may not make you wealthy. You may never appear on "Lifestyles of the Rich and Famous." However, lack of planning is equivalent to planning for failure. Planning will almost certainly result in your being better off than if you had not planned and will, we hope, result in your life being fuller and happier. Your financial success is worth some time and effort. Plan today for your financial well-being.
 For more detail, see Keys to Personal Financial Planning, Barron’s Educational Series, Inc., 250 Wireless Blvd., Hauppauge, New York 11788. This book answers all of these questions and more. If you master each of these "Keys", you’ll understand how to be a success at planning the direction of your personal finances.


Personal Financial Planning Short Stories

Of Treason and Constructive Receipt  -   by Neal D. King
Speeding Away the Future  -  by Robert Pittman
The Y2K Plan - John Tooraen
The Hunt - A Short Story - B. Keith Boeneke
The Bierlien Billing Scheme - Sharon B. Robinson
An Estate Tax Tale - Ashley Braun

Last Updated: December 4, 2006