Crafting a financial plan creates map to success; Status check: Organizing your records can show the way to your goals.; DOLLARS & SENSE


OK, your financial records, the ones you have anyway, are in shoe boxes. Your checkbook stays balanced mostly because of good fortune. Your tax returns from the last 10 years are jumbled together.

Time to get your financial house in order.

Where do you start?

Probably the kitchen table, or some other roomy, comfortable place. From drafting a budget to writing your will, comprehensive financial planning requires pencils, paper, a good calculator, plenty of room for records, maybe a computer. This isn't going to be easy.

But, experts say, financial planning is a worthwhile exercise that will eliminate a lot of mysteries, from how much you'll be able to afford for your children's college tuition to when you'll be able to retire. A sound financial plan will also put your investments in line with your goals.

Finally, a plan might suggest changes, maybe trimming insurance bills on one side of the ledger to searching for a higher-paying job on the other.

"The biggest problem I see is that people don't take the time to do this," said Mike W. Ward, vice president for Lutherville-based Academy Financial Inc., which does planning for businesses and individuals. "They take more time to plan their vacations than they do to plan their finances."

Before starting, be prepared to scour every corner of your financial life, from family inheritances to benefits at work to life insurance coverages. It might take a trip to a safe-deposit box and the personnel office at work. If anything, good financial planning is comprehensive. "I think people are starting to realize all these pieces tie together," said Lyle K. Benson, president of L. K. Benson & Co.

Some financial planners will work with a client's stockbroker, attorney and insurance agent to cover every base possible. Art Flach, managing partner of Grant Thornton's Baltimore office, said the reason is simple: "We get a real good snapshot of where clients are financially."

Ward, who calls the gathering of information "fact-finding," sends clients to their files with an exhaustive checklist. It includes mortgage amortization tables, stock option plans, tax returns and insurance policies.

"Comprehensive financial planning encompasses more than just a budget," he said. "That's literally just one component."

Still, the budget is an important starting point and a good deal more difficult than it seems.

With a few variations, making a budget starts with a long list of categories that includes housing costs, utilities bills, groceries, recreation, club memberships and so on. It's important to be realistic. There's no use figuring on $125 a week for groceries if you're regularly spending $150.

One way to gather truthful spending information is to spend a few weeks recording your spending, keeping and categorizing all your receipts as you go. Another way is to use data back a few months, using credit-card receipts, your check register and automated teller machine receipts.

Some planners recommend working with financial planning computer software such as Quicken, which will let you create spending categories.

Don't assume that spending will be the same every month. July might mean vacation. August might mean back-to-school clothes. December means holiday shopping. Be sure to account for those differences.

At the end of a month or two, you should have a pretty good feel for how much you're spending, where it's all going and whether there's more coming in than going out.

Another important first step is a net worth statement, which captures the difference between assets and liabilities. "The most important thing is to know what clients own and what they owe," Flach said. "A lot of people don't have a good handle on their assets and liabilities."

Assets include cash in various accounts; investments such as stocks, bonds and mutual funds; and personal assets such as homes and cars. Liabilities encompass mortgages, credit-card debt, car loans and other obligations.

"This is almost a report card for clients," Flach said.

Strange as it may seem, numbers collected so far are only part of a financial plan. Today's planners scrutinize insurance coverage -- including life, automobile, home, health, dental, disability -- 401(k) and pension plans, increasingly common stock options, tax returns and wills.

Academy Financial, for instance, has a risk management component that analyzes whether a client has adequate insurance or maybe too much insurance. "Insurance is not the first thing you think of in financial planning," Benson said.

But planners view insurance and estate planning as a way of protecting the assets listed in their net worth statement. "You have to sort of start thinking of it that way," Benson said.

Flach said people without wills easily end up signing away hundreds of thousands of dollars to the federal government. "The concept of estate planning is difficult, especially when you're dealing with young people," he said. "An awful lot of people don't have wills."

Once all the information is gathered, a planner's focus shifts to the future: Identifying goals and figuring out how to reach them. "That's the guts of the planning process," Benson said.

Ward said he views that stage as the collection of subjective information to complement objective information. This part of the process can be very difficult as major imperatives compete with each other. Many people in their 20s and 30s will be dealing with retirement, college tuition and supporting a parent at the same time.

"What are the goals?" Ward asks. "Does the person want to retire at 50; put the kids into college?"

Which one of those goals comes before the other? That's when financial planning can become difficult. Trouble can start for a couple when two partners disagree on priorities.

"A lot of times it gets beyond what my competencies are," Benson said. "People can have preconceived ideas and baggage they bring into the process."

Once people identify their goals, planners try to make their financial plans fit. Occasionally, fixes are easy to recommend. Some clients, for instance, might be directed to stop buying mutual funds with their take-home pay and start investing in 401(k) plans.

That's an easy call because 401(k) contributions reduce taxable income and often are matched by company contributions.

Planners spend a good deal of time considering their client's asset allocation, or where they should invest money they have. "How much in stocks vs. bonds, in large- vs. small-cap companies, international vs. domestic?" Ward said. "Most stockbrokers and investment people will tell you the most important thing is your asset allocation."

Academy Financial distributes a questionnaire aimed at determining risk tolerance, investment objectives and timetables. The idea is to figure out how aggressive an investor should be.

After a few months, with help from a financial planner or maybe on your own, you'll have a financial plan. But don't make the mistake of thinking that's the end of it. Goals, income and situations can change.

Benson, one planner, recommends revising your financial plan every three to five years. "It's important for people to realize, it's not a static process," he said.

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