Bare Bones Financial Playbook

Many folks imagine financial planning as a series of complex maneuvers that can only be executed by highly paid professionals. Don't buy the hype! Even arm chair quarterbacks can draft a plan that will get them over the goal line if they utilize three key pages in the financial playbook: a personal income statement, a balance sheet, and a risk matrix.


The easiest of these three documents to create is a Personal Income Statement to track and manage your cash flow. Take a sheet of paper and draw a line down the center of the page. On the left side of the line, write down everything you EARN each month from sources such as your job, pension, allowance, or social security benefits. Add those numbers on the left to arrive at your INCOME.

Next, on the right side of the line write down everything you SPEND each month on your mortgage, food, utilities, entertainment, car payments, student loans, etc. Don't forget to include bills that only come a few times a year- like property taxes. Add the numbers on the right to arrive at your EXPENSES.

Finally, subtract your EXPENSES from your INCOME to calculate your NET EARNINGS. Any positive remainder may be earmarked towards saving or investing for your future. A negative reminder means you may have to borrow from savings this month. Higher NET EARNINGS can help you reach your financial goals sooner, so strive to live well within your means.


Take another piece of paper and draw another line down the middle. On the left make a list of what you OWN, including homes, retirement accounts, investments, etc. Add these numbers to arrive at your ASSETS. On the right list everything you OWE, such as your mortgage, student loan, and credit card balances. These are your LIABILITIES. The difference between your ASSETS and LIABILITIES is your NET WORTH.

There are ONLY two things you can do to increase your NET WORTH and they are:

1. Spend < Earn (simply save more), whether you:
a. invest your NET EARNINGS, or
b. use your NET EARNINGS to pay down debt
2. Get a return on your savings / investments - always remembering that investing involves risk, including the potential loss of principle.

One of these is completely in your control (Savings), so you should work your savings muscles as often and as hard as you can.

This symbiotic relationship between your Personal Earnings Statement and your Balance Sheet can also work against you. If you constantly spend more than you earn, your NET WORTH shrinks as you spend down your ASSETS or accumulate LIABILITIES, taking you further away from your goals.


This document will have two lines dividing the page into three columns: Goals, Risk, and Plan. Start by making a list of your Goals in the far left column. Be as specific as possible. For example, instead of something vague like "buy a house in 5 years," write "save $100,000 down payment to buy a house in 5 years." Your Personal Income Statement and Balance Sheet can help you ground these goals in your financial reality.

Once your goals are established, move on to the Risk column. Risk can be defined as, anything that might effect the attainment of those goals. Perhaps one goal is for you and your spouse to retire at age 65 and maintain your current lifestyle. Will that goal be in jeopardy if the primary income earner in your family ceases to earn income due to layoffs, illness, accident or death? If so, add those Risks to the column.

The Plan column is where you define a strategy for achieving your Goals and mitigating Risk. Suppose your Goal is to take a 1-year leave of absence from work and travel the world, and the Risk is that your job may not be waiting for when you return. You may want to Plan to save enough money to cover your living expenses for an additional year before you get on the airplane. As Nick Murray, the advisor's advisor puts it, the whole process of financial planning is about:

"Taking responsibility for all the things that can go wrong to earn the right to plan for all the things that can go right."

Whether it's a simple plan for a single goal like buying a first home, or a comprehensive multi-generational financial plan involving millions of dollars, all financial planning can be reduced to the relationship between the these three documents. You'll want to review your Personal Income Statement, Balance Sheet, and Risk Matrix at least annually.

Understanding the core elements of each and how changes in one can affect the others will give you a solid footing as you move down the field towards the end zone.

Jonathan K. DeYoe, AIF and CPWA, is the founder and president of DeYoe Wealth Management in Berkeley, California, and blogs at the Happiness Dividend Blog. Financial planning and investment advisory services offered through DeYoe Wealth Management, Inc., a registered investment advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations to any individual. For your individual planning and investing needs, please see your investment professional.

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