Personal Finance Cheat Sheet
An easy guide to help you navigate your financial future.
Goal Setting:
Whether your personal financial goals are to
start a family, pay down student debt, retire
early or buy a home, your main financial goal
is to grow your Net Worth and manage your
Cash Flow.
Net Worth = Assets – Liabilities
Cash Flow = Income – Expenses
Tip: Write down your financial goals. When
doing so, consider how much money you will
need, when you need the money and how
important one goal is relative to other
financial goals. Also, keep in mind the
amount of risk you are willing to tolerate to
achieve your goal.
Cash Management:
Get Organized! Prepare a budget and
determine if you are you running a cash flow
surplus or deficit.
Income > Expenses = CF Surplus
Income < Expenses = CF Deficit
While budgets can be time consuming, they
will help you understand your current
lifestyle and create a sustainable structure
for your finances and long-term goals.
Surplus = Savings = Increasing Net Worth
Tip: If you find that tracking your spending is
too time consuming, after you have trained
yourself to spend wisely, you can consider
the following guideline: 60% of your gross
income can be dedicated to fixed expenses
(i.e. food, bills, all taxes) while 40% can be
dedicated to savings and discretionary
spending (fun money).
Build a Cash Reserve: As a rule of thumb,
consider keeping 3-6 months of living
expenses as cash or cash equivalents for
emergency and/or opportunity. This way,
you don’t need to tap savings earmarked for
other financial goals when an unexpected
expense or opportunity comes your way.
Insurance:
Insurance is a common tool used to help
transfer significant risks such as premature
death or disability, which could impede
achieving one’s personal financial goals.
•Life Insurance – provides a death benefit
in the event of premature death of a
spouse or significant other.
•Disability Insurance – provides income in
the event of full or partial disability.
Tip: When buying insurance, first decide how
much you need, for how long, and what you
can afford to pay.
Rules of Thumb: How Much Life Insurance
Do I Buy?
•Some people like using a calculation that
allows their family to use the lump sum
insurance benefit to create income
indefinitely. One rule of thumb is the 4%
rule, which means that you buy enough
insurance so that your family could live off
4% of the policy’s death benefit each year.
•Another approach is to add up all the
expenses you expect your family to need
to cover for a set period of time.
Tip: When shopping for life insurance, there
are many types of life insurance products to
consider, including term and permanent
insurance. Consider working with a financial
professional to help determine which
product is right for you given your needs
and affordability.
Protecting Your Income: Outside of family
and loved ones, many consider their ability
to earn income to be their most important
asset.
•If long-term disability benefits are not
offered through your place of
employment, consider the benefits of
owning an individual disability insurance
policy. Policies such as these could
provide between up to 60-70% of your
earned income, up to age 65 and, in some
cases, longer.
Tax Planning:
Taxation planning considers the taxation
implications of individual, investment, or
business decisions, usually with
the goal of minimizing tax liability.
•This is often achieved by reducing taxable
income through income deferral and
income shifting.
•Other strategies for reducing taxable
income include:
oDeduction planning
oInvestment tax planning
oYear-end planning strategies
Investment Tax Planning
•This involves evaluating how to best
position assets in order to minimize the
amount of taxes you have to pay on an
ongoing basis.
•Requires year-round planning.
•Begins with an in-depth understanding of
the tax implications of various investments
and investment strategies.
Common Tax Planning Mistakes
•Waiting until the end of the year to begin
tax planning.
•Ignoring the impact of the federal
Alternative Minimum Tax
on your financial decisions.
•Not taking advantage of tax-deferred or
tax-free investments.
•Ignoring the tax implications of life
changes, such as the birth
of a child, marriage, divorce, selling a
home or business, etc.
•Overlooking the tax-lowering impact of
charitable gifts.
•Not understanding the tax savings
opportunities under new tax laws.
•Not maximizing the potential tax
advantages afforded by retirement plans.
•Selling property without taking into
consideration the capital gain impact.
Tip: Even if you delegate filing your taxes to
your accountant or tax professional, knowing
the decisions that can affect your tax liability
will allow you to take the greatest possible
advantage of permissible tax savings.
