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Person counting cash and budgeting.

Introduction

 

This is the first in a series of articles that walk through the process I use with new clients as I build an initial financial plan.  My hope is that you can use this to start building your own plan and that it allows you to be a better steward. Here’s an overview of what’s to come.

The Process

 

My initial planning process consists of three phases, each broken down into three or more steps.  I’ll be writing a blog post on each of these parts listed below.

  1. Get Organized
    1. Cash Flow
    2. Net Worth
    3. Protections
  2. Gain Clarity
    1. Values
    2. Purpose
    3. Vision & Goals
  3. Be Intentional
    1. Assessment
    2. Adjustments
    3. Action Plan

Phase 1: Get Organized

Let’s get started!  The first step in my planning process is a Get Organized meeting.  The reasons are 1 – so that I can get a clear picture of where you are, 2 – so that you are able to step back and see the entire picture of your financial situation, and 3 – so that you can feel more at ease about where you are financially and confident in your understanding of how those pieces start fitting together. 

Before the meeting, I provide clients with a list of documents and information that they can begin gathering.  We then spend the meeting going through all of the information, organizing documents, and entering it all into their client portal. By the end, we have a complete picture of their current financial situation. 

Here’s a quick list of documents that will be helpful for you to pull together and review as part of this exercise.

  • Your last 2 pay stubs
  • Your most recent tax return
  • Your budget (or last 3-6 bank & credit card statements if you don’t have a budget)
  • Recent account statements
  • Insurance documents
  • Estate documents

Step 1: Cash Flow

This post will cover the first place I start with new clients – their cash flow.  This is usually the biggest and hardest thing for them to get their arms around. A few come in with detailed budgets, but most don’t.  Even those who budget, often have a hard time telling me how much they spend in a year, or how much they save annually, or pay in taxes.  When you only look at cash flow on a day-to-day, or paycheck-to-paycheck basis, it can be hard to see the bigger picture.  So in looking at cash flow, I recommend starting zoomed in, and slowly zooming out. We want you to understand what you make and where it goes.

Review your income

Between income and expenses, income is usually easier to organize.  Most only have a few sources of income.  Start by looking at all the different sources of income, and listing out how much they amount to annually.  The best place to start is your paystub. But also account for your less regular income like bonuses and stock. Determine what is most likely to come in over a year (not the max amount possible if you and your company hits their top target in numbers.)

  • Review your income
  • Base Salary
  • Cash Bonuses & Commissions
  • Stock or Equity Compensation
  • Rental or Business Income
  • Self-Employed income, contract work, or side-hustle income
  • Gifts & Inheritance

 

Review your outflows

Outflows tend to me a little messier to start with, but I like to break them down into the following broad uses for money:

  • Debt
  • Saving
  • Giving
  • Taxes
  • Living Expenses (Needs and Wants)

From there, I like to work down in the order I have them listed.  Why?  Most people don’t really know how much they spend. Maybe they know a monthly average, but there’s still a lot of areas that are overlooked. So it helps to start with the numbers that you can pull directly and back into what is getting spent.  Don’t worry, we’ll actually go through expenses as well – but this gives us a way to check our numbers.

Debt – this should be easy to find. Take all of your monthly payments and add them up.  If you are making extra principal payments, include that as well.

Saving – Start with what is being deducted from your paycheck into employer plans (go back to your paystub).  Be aware of contribution limits, such as a maximum of $23,500 can go into your 401(k) for most people in 2025.  Depending on the type of plan, limits can vary.  Add any contributions you make to an IRA or Roth account, money going into 529 plans for your kids, and money you’re investing in brokerage accounts. Cash savings also count, so money you’re adding to your savings or money market account regularly all go into this number.

Giving – You likely know this or can identify it pretty quickly.  Look at money you give regularly and money that you may give as one-time or year-end gifts.  This would be donations to church, charities, schools, etc.  Be sure to include money you’re gifting to individuals like family members.

Taxes – Start with withholdings on your paystub.  Also look at last year’s tax return.  Be sure to adjust for any changes in income from last year, but if everything is fairly similar your taxes should be too. If you had major changes, it will require doing some projections.  Try using the IRS website’s withholding calculator.  I use a specific tax planning software to run reviews of client’s tax returns and projections for current and future years.

Living Expenses – finally, if it’s not going towards taxes or debt, and not being saved or given, it must be getting spent.  Take your annual income and subtract out the annual amounts for the above categories. This should leave you with a number that’s getting spent each year.

 

Review Your Budget

To go deeper on the living expenses, I like to look at the actual cash flow for clients.  We’ll review their budget if they have one.  If not, we look at the past several months of bank and credit card statements to see what they’ve been spending on average. In some cases, we may go back over 12 months to account for the non-monthly expenses like vacations or school tuition. 

I recommend my clients link their accounts in their client portal or some other budgeting software in order to help with this. Most apps will automatically categorize things for you, but you should still go through the transactions to double check.  Things like Costco, Target, and Amazon can be tricky as it could be groceries… or it could be an air fryer or a sound bar!  It doesn’t have to be perfect, so just categorize as best you can and move on.

From there, I recommend labeling those expenses as either a need or want.  The idea is to understand how much you need to cover all the essential monthly expenses.  This will be helpful later in planning process. It’s also good so see how much of your spending is discretionary so that you know what levers are available to you to adjust outflows.  

This is often eye-opening for anyone who doesn’t already budget.  I don’t recommend making any changes yet (that may come later in the process) but to simply see where the money is going.  It’s important to say up front, that the purpose of a budget is not to restrict or change your spending.  Many of us cringe just thinking about a budget for that very reason. Being intentional allows you to get even more enjoyment from what you do spend. It also allows you to see whether that spending aligns with what’s important to you.

 

Before we get there though, let’s take a look at Part 2 – Your Net Worth to understand more about what you own and what you owe. >>