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From a planner's side of the desk, it's important to start at the beginning. Financial planners and clients mutually define a client's personal and financial goals, needs and priorities. This step is what financial planners call the data gathering: Financial planners will obtain all the quantitative information and documents about a client before any recommendation is made and/or implemented.

The discussions that follow are based on Lisa and Beth's lives today, and the information that they provided. Some of the recommendations will be very specific, others more vague. This approach is based on the assumed evolution of their personal and financial situations.

Balance Sheet

In the case of Lisa and Beth, it is critical to create a balance sheet — a snapshot of their wealth at a moment in time. The balance sheet reflects what they own (their assets), what they owe (their liabilities), and their net worth (the difference between assets and liabilities). A positive net worth indicates that they own more than they owe. A negative net worth would indicate that they owe more than they own. More>

Cash Flow

Another important document needed is a statement of cash flow. The cash flow statement typically reflects a household's annual income less its discretionary and non-discretionary expenses. Income minus expenses is what financial planners call net cash flow. Positive net cash flow is good because it can create savings and financial security. Negative net cash flow is bad as it creates debt and/or erodes savings. Beth and Lisa have, at the time of this analysis, negative net cash flow. More>

Debt Management Plan

Lisa and Beth recognize that paying down debt has to be a top priority. If they do not employ a strategy to pay off their credit card bills and auto loans, they simply will not be able to achieve their other financial goals. Their debt management plan involves paying down their credit cards beginning with the balance on the highest interest rate first. More>

Savings Strategies

Lisa and Beth need to make paying down debt their top priority. But once that's down, they will need to come up with a savings strategy to build up an emergency fund and achieve their short- and medium-term goals. More>