Last week we began the series on developing a financial plan toward your financial dreams. Working on the premise that anywhere we desire to go in life takes planning, we will continue this week by looking at our income and expenses. But first, let\’s review…

Financial Plan
A financial plan is a detailed accounting of all of your financial assets and liabilities; your budget; your financial goals and the method to attain them.

Balance Sheet
A balance sheet is a snapshot of your financial condition at a specific moment in time.

Income and… Expenses

We will go over income and expenses. First let\’s look at your income. If you are employed by a company, dig out your pay check stub. We need to know your gross income, federal withholdings, social security tax withheld, any health insurance premiums and all other benefit deductions from your paycheck. We need to know this per pay period and per year. If you are married, we need the same information on your spouse. What other sources of income do you have? A second job, rental income, investment income, are you receiving any benefit payments? Are you retired all ready and receiving social security or pension benefits? Military benefits?

If you are self employed and or a business owner you may want to create an actual income statement or Profit and Loss statement. This is really simple, take all sources of income and list them then subtract all expenses. You may want to keep business income and expenses separate from personal income and expenses and have two different Profit & Loss staments.

Next is finding out where your money is going. This is the really hard part. Being truthful with yourselves as to what your are spending monthly. Begin with your mortgage or rent payment, your auto payment, utility bills (Electric, gas water), insurance (home owners, auto, health, life, disability), gas oil and maintenance for you car(s), your monthly out of pocket cash expenditures, credit card payments, out of pocket medical, cable or satellite TV, phone and internet services, out of pocket for your children if you have them, education expense, clothing, gifts, vacations, income taxes…

If you use Quicken or Quick Books you should be able to generate a report with all of this information rather quickly. Any other accounting system or software can do the same functions as well.

Once you have all of these items listed you can really observe and tear apart where all of you money has gone. This is your first step towards finding better uses for your money or finding sources to divert to savings and investment. If you are upside down, do not despair, we can help you to begin cutting some of the things that are not necessary.

I have personal experience in this. When we were hit with 9-11 and prior to that the dot com bust, my business was hit hard. Suddenly my income was less than my expenses. Therefore, I sat down and cut my expenses. I printed off general ledgers for all of my companies and personal accounts and started cutting costs. After one month I reviewed the expenses and found I could cut more. I did this again a third month and cut everything down to the bare bones. Using this method I was able to cut my expenses, and surprisingly, it really didn\’t affect my quality of living.

Congratulations! You\’ve taken one step further along the path of your dreams. Now that you have completed your sources of income analysis and determined where your money is currently going, you can move on to some true planning. We will proceed next week with various phases of goal setting, savings and investment goals, life insurance planning, and some deeper financial analysis projects.


Corey N. Callaway

Investment Advisor Representative

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