Broker Check

May 1, 1997

Schedule Your Financial Checkup

          Now that the April 15 tax deadline has passed, perhaps you should review your overall financial situation. Keeping on top of your financial affairs can be a formidable job, so spreading the task over a period of time can make it easier.

Some key components of financial planning include:

          Goals and Objectives-Setting goals and objectives is a critical first step since they are the foundation of a financial plan. Once goals are identified, they should be quantified and prioritized, and your progress in meeting your objectives should be reviewed regularly.

          Snapshot of Your Financial Situation- Document your starting point by completing a statement of assets (including cash value of life insurance policies) and liabilities to determine your net worth. Preparing a net worth statement annually will assist in gauging progress towards short-and long-term goals and help to identify problematic situations early.

          Budgeting-Living on a budget is unappealing to many, especially if it is thought of as a strait-jacket. A budget should be viewed as a tool--a plan for the receipt, disbursement, and saving of funds that will increase your awareness of how money is spent and help you manage your money better in the future.

          Budgets should be short ad simple, and tailored to your goals. They can be prepared for any time-frame, but budgeting on a monthly basis for a full year is a good start.

           Income Tax Planning-Now is an excellent time to begin tax planning for 1997. Begin by preparing an estimate of taxable income for 1997 and 1998. It maybe possible to time receipt of income and/or time deductions so as to minimize your total tax liability.

          Establish the proper amount of withholding and/or estimated tax payments now--the objective is to pay the minimum amount necessary to avoid underpayment penalties. Paying in more than required is essentially giving the government an interest-free loan.

          Debt Management-Debt is a useful, yet potentially dangerous financial tool. When used properly, it can help you achieve your goals sooner; however, excessive use of debt can be expensive and can undermine your financial well-being. Review the terms of all outstanding debt annually and investigate opportunities to refinance debt at more favorable terms. Factor the impact of taxes into refinancing decisions by comparing the after-tax interest rate of the existing loan with that of the prospective loan.

          Investment Planning- Investors face many uncertainties--for every rate of return offered, there is a corresponding risk. Risks can be minimized by investing in different categories of assets--a process known as asset allocation. Studies indicate that wise allocation of investments is the largest determinate of investment success, more than individual stock selection or being able to time the ups and downs of the market. Consider seeking professional assistance to develop and monitor a personal investment plan.

          Funding Education- Education costs continue to increase at a rate higher than the rate of inflation. Assess your progress towards funding education and investigate potential sources of financial aid.

          Contingency Plan- Short-term periods of unemployment are not uncommon. It is a good idea to have an emergency fund or home equity line of credit available to get ongoing expenses. Additionally, be sure that your disability insurance provides adequate funds if an injury or disease prevents you from working.

          Risk Management and Insurance Planning- Health, life, auto, homeowners, general liability, and long-term care insurance should be reviewed annually. The prudent consumer of insurance judiciously allocates premium dollars to reduce financially significant exposures. This includes using appropriate deductibles and, in some cases, deciding not to insure against a potential loss (but, never risk a large loss to save a small premium).

          Retirement Planning- Much of the burden and risk of planning for retirement has shifted from employers to employees. Also, the availability of funds for future beneficiaries under our Social Security System is a topic of debate. The message is clear--your retirement is in your hands. Periodically compare expected retirement needs with assets currently available, your savings pattern, and the length of time until your retirement.

          Estate Planning- Estate planning is the process of creating a plan for the caring of loved ones as well as for managing, administering, and distributing your assets after you die. If you die without a properly executed will, intestate laws will determine these matters for you. Since it is likely that the requirements of intestate laws will be inconsistent in some way with your wishes, a will is essential. Other documents useful in estate planning include: a living (revocable) trust, a durable power of attorney, and a living will (sometimes called a durable power of attorney for health care).

          Reviewing ownership documents is an important part of estate planning. How your property is titled will determine whether the asset is controlled by your will, by law (e.g.joint-tenancy-with-right-of-survivorship property), or by contract (e.g., life insurance). The best estate and financial plans can be thwarted by improper titling of assets.

          Also, be sure that your executor knows the location of key documents and the names of your attorney and accountant.

          These are just some thoughts to consider when reviewing your finances.

          We also remind you that Howard Lisch is a registered representative who can place your investments.

          If you have any questions about these or any other financial matters, please call us.