The Contents of a Professionally-Created Financial Plan

The output of the financial planning process is called a comprehensive financial plan. The contents of this plan will vary not only because the details of one person’s financial life is different from another’s, but also because financial planners employ different software tools to produce the plan.

We will discuss here the most typical information contained within a financial plan, how it’s organized, and what purpose it serves.

A Series of Financial Statements

Ranging from simple to complex, a financial plan will contain a series of financial statements providing an organized view into the data and assumptions gathered during the financial planning process, and forward projections made from that data.

Examples of financial statements provided:

• Net Worth Statement – Similar to a balance sheet, a net worth statement shows the value and detail of assets, liability and net worth of the individual, couple or family on a given date.
• Cash Flow Summary – A statement showing the ebb and flow of cash from the combined effects of income, savings, and expenses on an annual basis.
• Assets – A statement of assets in greater detail than that shown in the Net Worth statement. Further, the statement of assets projects forward, based on the underlying assumptions, annual estimates for asset values over the life of the plan.
• Projected Cash Flow – This statement provides a detailed view of the timing of cash flow as a result of income, savings and expenses, annually, over the life of the plan. The detail is much more refined than in the Summary Cash Flow statement.
• Income Flow Detail – This statement shows the in-flows of cash from a number of sources, such as job income, business ownership income, social security, pensions, inheritance, and more.
• Other Portfolio Activity – this report is designed to show other items that impact your portfolio value, such as planned savings and distributions to/from retirement accounts, matching contributions from employers, and more.
• Expenses – This report shows expected cash expenditures over time, for things such as living expenses, taxes, liability payments, insurance premiums, weddings, college education, etc.
• Liability Payments – This report illustrates your projected cash expenditures for your liabilities, such as for home loans, car loans, credit cards and student loan.
• Planned Savings – This report illustrates your projected cash flow resulting from employee retirement contributions and transfers from cash assets to non-cash assets.
• Savings – The Savings report provides a breakdown of your Planned Savings, Employer Provided, and Year-End Savings.
• Income By Taxable Type- The Income report projects your future income from all sources, but with a tax-related view.
• Income Tax – The Income Tax report projects your future federal, state, capital gains, dividends, and other income taxes.
• Amortization – The amortization worksheet shows you the expected balance of loans and mortgages over time.
• Buy/Sell Transactions – The Buy/Sell Transactions report shows the proceeds resulting from the sale and purchase of assets.
• Reports Related to Retirement – Contained within the financial plan will be a number of reports related to retirement. These reports serve to answer questions such as, “what if I decide to retire sooner rather than later, or later rather than sooner?”, or “what if I save more (or less) each month toward retirement?”. Also, “what if I spend less during retirement?”, or “what is the earliest I could retire?”, or “what is the maximum I can spend during retirement?”
• Reports Related to Estate Planning – When appropriate, there can be reports related to the impacts of not preparing for estate taxation.  The software can model many scenarios with multiple strategies to minimize the impact of potential estate taxation of your heirs.
• Reports Related to Insurance and Risk Mitigation – When appropriate, there can be reports related to life insurance coverage and other types of insurance that may be needed to mitigate different types of risks we face in life.
• A Summary of Underlying Personal Data – Originally gathered during the financial planning process, personal financial information and family data, and assumptions related to this data, are summarized in a number of sections within the report. This includes basic data on immediate and extended family members, family assets, liabilities and expenses, education needs and details, and more.
• Assumptions Summary – The Assumption Summary report shows the various assumptions upon which your plan is based, usually relating to the investment portfolio. For example, assumptions are made as to how invested assets are allocated, what rate of return they might yield and for how many years that asset might be held. There will likely be an assumption to account for growth in prices, such as an estimate for the Consumer Price Index (CPI). Assumptions will be made relative to federal and state tax rates, capital gains tax rates, heirs income tax rate, and other relavent taxes. Assumptions will be made on age of retirement and age at death.

Summary

With a comprehensive financial plan, we can see visually, through tables, charts and graphs, the projected ebb and flow of our financial life as we move through the major events and milestones of our lives. In having this plan, and revising this plan annually to keep it up to date, we have a point of reference to see if and when we are on course toward realizing our goals in life. We are less likely to be caught ill-prepared for a major financial event. We gain peace of mind in knowing we have properly planned for our future and the future of our family.

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About the Author

Todd E. Frank, CPA/PFS, MBA is the President and CEO of Frank Financial Advisors, a Registered Investment Advisory Firm (RIA) serving clients nationwide from our headquarters in Carlsbad, San Diego, California. As an RIA, Frank Financial Advisors is able to offer truly independent, fee-only financial advisory services.