Letter of Advice for the Brown Family

Dear Brown family,

1. Why it is important for us to develop and maintain a spending plan?

It is important to develop and maintain a spending plan so that you can keep track of your 

financial goals and make changes as you see fit along the way. With a spending plan you will increase your net worth, help manage your money, help reach your goals and help you see the opportunity costs of trade offs. By having a budget plan you are setting yourself up for a bright financial future. 

2. We don’t know how to develop a spending plan. Would you explain exactly how you developed our spending plan so we can repeat the process?

You need to first identify what your net worth is in the present moment using a spread sheet. Then find what you need to change; lots of times people change how much they spend on entertainment or clothes. Then change those items so that you can re-calculate your net worth to see if the new plan is better then your original plan. If it is then great, but still constantly leave time to evaluate and make changes to your current plan. Also don't forget to choose the best possible control system whether it be an envelope system or even a check register system having some sort of system will help you keep track of your money.

3. What changes did you make to our January Income and Expense Statement in order to develop our February spending plan? Please make sure to explain why you made each change.

I changed your January statement by increasing and decreasing certain assets. I decreased the amount you spent on restaurant food by 250 because you said you wanted to spend less money on restaurants. I also decreased the amount you spent on clothing because, although you need clothes for work, you were willing to spend less money on it. I also decreased the amount you spent on entertainment because I felt  that if you really want to make your net worth increase then you are going to have to save up your money. On the other hand I increased your emergency savings by 100 because you said you would like to save more on your emergency savings. I also increased your car loan payment to 50 dollars so that you could pay it off faster. Lastly I increased the amount you spent on groceries by $50 because you are spending less money on restaurants.

4. Our goals needed to be more specific after creating our spending plan. What do you think our new, more specific goals should be?

I think your new goals should be the following:

You plan to save enough for your car loan payment by saving an additional $50 each month for 12 months. You will need to spend 50 dollars less on entertainment.

You plan to save  for your emergency savings by saving an additional $100 each month every year.

5. What control system do you recommend we utilize and why?

I would recommend you use a Internet based spending plan program because that way you can both access all the information you need together instead of one person having all the paper work.

6. We want to evaluate our spending plan from month to month and ensure it continues to work for us. Do you have any advice for us regarding how to best do this? (offer at least one piece of advice)

I would suggest to plan your time for evaluating your spending plan to make sure you will stay on top of your budget. Usually take time around their pay day to evaluate their plan but do what ever works for you!

I hope everything works out!

Your financial adviser, 

Katryn

Financial Independence is the Key!

How Much Money Do You Need To Be Financially Independent?

This article (link to article ) gave me a different perspective on what it means to be wealthy. To be wealthy you must have a good net worth, like we have been studying. This rule of thumb created by Danko and Stanley can be helpful when finding your net worth:"Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be.".A lot of millionaires don't have fancy cars and expensive houses as some may just assume. These millionaires actually save their money and are very frugal. My mother told me how she learned how to be frugal through her family members, so it is always best to be surrounded by people who know how to save and have good financial habits. You can have a huge income and still be struggling to keep up with your finances if your wages worth is spent on expensive items. By looking at your financial statement this problem can be fixed if you take out the items in your statement that you do not need. I would say that this article was a perfect way to tie everything together. This article definitely gave me a good sense on what it actually means to be wealthy; I learned that people who look rich may not actually be rich. I don't aspire to be a millionaire I aspire to be financially independent. This article opened my eyes to the power of saving and keeping track of your savings.Lastly, I realized that being financially independent ultimately will bring happiness to one's life.