A few months ago I wrote an article on preparing for a time of loss and the importance of having your affairs in order. Since then, in talking with readers and clients, many have expressed that they simply don’t know how to get started and/or don’t have a clear idea of what the end result should look like. Today I’d like to address these questions.
Really, what we are talking about is personal financial planning … about having all aspects of your financial life laid out in a meaningful manner. So what constitutes your “financial life?” Let’s explore…
The Balance Sheet
Ideally, you will have a record of your assets and liabilities; this is your financial life in a snapshot, formally called a Balance Sheet. When you subtract your liabilities from your assets you arrive at your personal net worth. For example, if you have $500,000 in total assets and you owe $200,000 in debt, your net worth is $300,000.
Assets are things that you own: your car, your home, furniture, computers, electronics, other real estate, bank accounts, investment accounts, retirement accounts, etc.
Liabilities are things that you owe: home loans, automobile loans, credit card debt, medical bills, etc.
If you are applying for a loan, the application you complete is a form of a Balance Sheet. If you are meeting with an attorney to establish a trust, they also will need a Balance Sheet to assess your estate planning needs.
The Cash Flow Statement
Your Cash Flow Statement is simply a list of your income sources plus a list all of your regular bills and expenses, and the more detailed the better. Try to include the following:
Income
• Who pays you
• How much do they pay
• When do they pay; is it monthly, quarterly, or yearly
• How is it paid; check in the mail, automatic deposit?
Expenses
• Who you pay
• How much you pay
• When you pay; is it a monthly, quarterly, or yearly payment
• How is it paid; by check, online, or automatic bank draft?
Regular bills are those payments that you routinely make: house payment or rent, automobile payments, utilities, water, garbage, phone, Internet and cable services, insurances, credit cards, etc.
Regular expenses are those things that you routinely spend money on: groceries, dining out, clothing, personal care, hair, nails, gym, medical and dental, gas, pet care, hobbies, entertainment, vacations, etc.
Note: If you use passwords and PINs (who doesn’t these days!), be sure that a trusted family member or friend has access to this information in the event of an emergency.
Documents
Many people take advantage of the security of a safe deposit box at their financial institution; if this is your preferred method of document storage, it is helpful to keep a written record of what is in your box. Conversely, you may have a file cabinet, home safe, or other storage methods. However you are organized, it can be helpful to maintain a list of important papers.
Examples of documents, or important papers, would include: property deeds, insurance policies, legal documents such as wills and trusts, beneficiary designations, benefit statements, tax records, titles to automobiles, etc.
A list is in place for access by a trusted family member or friend who knows where documents and keys are located, and arrangements have been made for their authorization to access in the event of an emergency.
The Contact List
Compile a contact list with information for all companies, as appropriate, listed on your Balance Sheet and on your Cash Flow Statement. Additionally, include a list of professional advisors, such as attorney, financial advisor, and tax preparer. Also include medical professionals such as primary care physician, specialists, dentists and optometrist. Be sure to include names, phone numbers and/or email addresses, relationship, and any special notes.
In closing …
Effectively getting your affairs in order is about organizing your financial life so that you have a good handle on what’s going on in your world.
Please, please, please share with someone you trust – whether you review the details with them, or simply advise them of where to go when the need arises, communication is key.
There are a number of tools and methods available to help you such as filing systems, binders and cabinets. Whatever your approach, I’m betting you’ll have a little more confidence when you feel that your financial life is in order.
To assist you, we have a number of forms available to get you started; call for complimentary copies.
Kristi Ellington is a registered representative with and Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
