Financial planning for your early years in practice
As you complete your education and enter the workforce you are faced with many challenges. As you begin a working career many
issues including those related to financial matters come to light. Once you have gotten through employment negotiations, you
will have a good idea as to what your salary and benefits will be. The first important financial considerations that come
to a new graduate include debt repayment of student loans, housing costs and transportation. It is important to consider that
in establishing one's independence that an orderly plan be established with goals to achieve a desired result. The preparation
of a personal cash flow plan can be a big help.
Cash flow plan
In establishing your cash flow plan, it will assist you in setting financial goals. Your financial goals should be established
by determining their cost, ranking them in order of importance and in a time frame to accomplish. Sample financial goals might
Rank Goal Amount Time Frame
Pay off student loans
Purchase a home
Pay off credit card debt
Purchase a car
Make a large purchase (furniture, jewelry)
Plan a vacation
Save for retirement
Save for children's college education
Purchase disability insurance
Purchase life insurance
The success of a financial plan depends on the clear identification of all goals and objectives. The amount should be represented
in today's dollars, or at their present value. An assumed inflation rate will determine the future value assigned to those
goals. Short- term goals may be personal or practice related. The most common long-term goal in a financial plan is to retire
comfortably. Once financial independence has been achieved, the next most common goal is estate and gift planning. Often,
a financial planner can provide great value by identifying, quantifying, and agreeing upon goals that previously were unconfirmed.
Once goals have been established, prepare a net worth statement and cash flow statement. Since almost all areas of financial
planning are controlled by cash flow, it is important to construct a cash flow statement, which is accurate and believable.
The success of your plan rides on your implementation of financial strategies that arise from the foundation of your cash
flow statement. If you don't believe the numbers, you will not implement the strategies, thereby allowing your plan to fail.
Your standard of living is a function of your cash flow statement. A cash flow plan covers a specific period of time, and
is the most difficult financial statement to construct because many perceive it to be a tool for setting up a budget. Most
do not live a disciplined spending lifestyle. It is not designed to be a budgeting tool, although it certainly can be. A cash
flow plan is designed to provide comfort when there is surplus income, which can be diverted for other planning needs. If
there is no surplus income, perhaps a budget is in order to generate the funds needed. For example, if retirement savings
are treated as just another periodic bill, you are more likely to succeed.
A comprehensive cash flow statement, or lifestyle budget outline, begins with an analysis of your operating checkbook and
a review of various source documents, such as your tax return, credit card statements, pay stubs, and insurance policies.
A typical statement will show all cash transactions that occur within one year. It is helpful to establish a monthly equivalent
to all items of income and expense, but for the purposes of getting started, items of income and expense may be noted by the
frequency you are accustomed to receiving or spending them.