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This article has been published with the permission of the author Todd Rainey.
Todd Rainey is the author of the book "Money Talk - A gay and lesbian's guide to financial success". Todd Rainey can be located online at
Financial Planning: A Process for Gays and Lesbians
July 30, 2004
I wish that I could tell you that the financial planning process is easy and that all of you will one day be wealthy. What I can assure you is that the "process" is simple – though having the discipline and foresight to keep on track and follow the plan is never easy.
For gays and lesbians, who may not have the added pressure – and reminder – of saving for childrens’ braces and college funds, this is especially critical. However, even without that outside pressure, if you stay focused on your goals, financial freedom can be yours. Again, the key word here is process.
Establishing Your Financial Goals
Your goals depend a lot on your range of desire. You may simply want to save for an expensive purchase, or plan for a long-range goal, such as retirement. If you plan and invest well, and build a substantial level of assets, you may want to plan for an orderly distribution of your estate at the time of your death. The main thing is, you need to have a vision of where you want to be, or chances are you will not get there.
If you don’t know where you want to be, or what you want to have, speak to others to find out what their plans are. Some things may fit, and others will not, but then you have some ideas from which to choose.
Simply put, you need to know what is coming in, what is going out, and more importantly, what you are keeping. As my wise grandfather always told me, "It’s not what you make that’s important, it’s what you keep." You’ll also need to gather copies of important documents such as: tax returns, life insurance policies, auto and homeowner policies, pension plans, IRA’s, wills and trusts you’ve executed, as well as any other important documents.
Balance Sheet – Knowing Your Net Worth
A balance sheet represents a major step in creating financial freedom – finding out where you are now. It is a list of everything you own and everything you owe. It’s like a snapshot of your overall financial picture, and only reflects the moment in time when you fill it in. The balance sheet will show if you are in a positive or negative financial position. You may see how some items can produce income for you when you choose to stop working for a living, and others will not. For example, equity in a home produces no income to buy groceries.
The value in seeing this snapshot is the opportunity to create a before and after financial picture. Whether it’s three months, six months, or one year from now, you can take this picture again. This is how you will measure your progress. You will see if you have more cash in the bank, newer cars, more investments, or less debt each time you take a new picture. The objective is to create a larger, investable net worth. This is the amount you would have left over if you sold everything you owned to pay off everything you owed.
Again, assets are everything you own. Liabilities are everything you owe. If you subtract what you owe from what you own, it’s called Net Worth. You won’t be selling everything off, but it’s one clear measurement to show you how close you’re getting to financial freedom.
First, on one side of a page list your liabilities such as:
Credit card balances
Mortgage(s) (outstanding balance)
Past income taxes
Add the total dollar amount from this list together.
On the other side of the same page as your liabilities, complete your asset list. This should include:
All the cash that you have in your possession right now
All monies in your checking accounts
All monies in your saving accounts
Money Market accounts
Certificates of Deposit (CD’s include accrued interest; exclude future interest and possible penalties for early withdrawal)
Cash value of life insurance policies
Also include invested assets:
U.S. government bonds/foreign government bonds
Investment real estate
Limited liability company interest
Sole proprietorship interests
Individual retirement accounts (IRA)
Vested portion of pension plans
Any other investments
Finally, this list must include use assets (real property):
Artwork, Jewelry, Antiques, Collectibles
Now, add up this asset list for a total, then subtract this amount from your liabilities list.
If your input information is accurate, your bottom line will also be accurate. The asset list will equal your net worth, which you can compare to your liability amounts. Again, keep in mind your net worth is a moving target, and is only a snapshot of one moment in time. There’s no secret to knowing your net worth. (If you have a partner and you maintain separate finances, an individual balance sheet for each of you may be more appropriate.)
Using Your Balance Sheet
Consider the following uses of the balance sheet as a tool to help you in your financial planning:
Insurance planning tool. Your balance sheet can be an important source of information for risk management and insurance planning. The balance sheet also can provide a few clues about your need for life insurance. If your balance sheet includes liabilities that would be a burden on a loved one in the event of your premature death, you’ll want to be certain your life insurance coverage is sufficient to satisfy the liabilities. For example, if you have a mortgage on your home and would like to provide your partner with enough insurance to eliminate that debt and provide a free and clear home instead of a large liability. A life insurance policy would be appropriate for this purpose.
Investment planning tool. A quick review of the relative values of your invested assets can give a rough idea of whether your portfolio is properly allocated among the various types of investments. Studies have shown this area is the most critical in determining your portfolio’s overall rate of return. It has been shown that proper asset class selection contributes up to 91.5 percent of a portfolio’s return. (Investing at the right time provides a mere 8.5 percent of the return.)
Retirement planning tool. An important part of the retirement planning process requires identifying how much you should save and invest to meet your retirement income needs. To do this, you need to understand first how much you currently have available to apply toward your goal. Remember, what you "spend" now will never return; what you save and invest now will be with you for life.
Estate planning tool. In order to decide how you want your assets disposed of when you die, you need to identify what those assets are.
Measuring progress toward goals. Many of your financial goals will not be accomplished immediately. Something such as saving for retirement will require long-term savings and investing strategies. Preparing annual balance sheets and comparing each year’s figures with those from the prior year can help you measure your progress toward your goals. This will also help you see if you are on track, or if you may need to adjust your plan accordingly.
This information is based on Todd Rainey’s "Money Talk – A Gay & Lesbian’s Guide To Financial Success.".
Todd Rainey can be located online at http://gayfinancialadvisors.com/California.htm