Lesson 9: Financial Planning

Financial Planning Reference

Net Worth

Net Worth = Total Assets − Total Liabilities. Track it annually. The goal: grow it steadily over time. Negative net worth is normal early in life (student loans, mortgages).

Financial Milestones by Age

• 22-25: Emergency fund built; employer match maximized; credit card debt zero.
• 25-30: 1× annual salary saved for retirement; Roth IRA funded.
• 35: 2× annual salary in retirement accounts.
• 45: 4× annual salary saved.
• 55: 7× annual salary saved.
• 65: 10-12× annual salary; ready for retirement.

The 4% Rule (Retirement)

You can safely withdraw 4% of your portfolio per year in retirement. To retire, you need ~25× your annual expenses. At $50,000/year expenses: need $1,250,000 invested.

Financial Independence

FI/FIRE: Financial Independence / Retire Early. Achieved when passive income (investments, rental) covers all expenses. Key number: 25× annual expenses in investments.

Estate Planning Basics

• Will: directs distribution of assets after death.
• Beneficiary designations: update on all accounts (these override a will).
• Power of Attorney: who manages finances if incapacitated.
• Health care directive: medical wishes if unable to decide.