Like spring cleaning, financial planning is an opportunity to commit to a more organized approach. Now that spring is halfway over and tax returns are filed, it’s the perfect time to take a look at your financial situation and make sure you have the right planning partner. Here are five tips to get you started:
1. Ask an Expert – Another similarity between spring cleaning and financial planning: it can be hard to know where to begin. Comprehensive financial planning involves a review of investment, taxation, insurance, retirement and estate needs. It is essential to properly coordinate these disciplines with one another. A recommended starting point for this process is to craft a financial plan with a qualified advisor. An advisor should belong to an organization that has sufficient financial planning experience and credentials. The Certified Financial Planner™ or CFP® from the Certified Financial Planner Board of Standards is one such credible designation.
2. Follow the Cash Flow – An important topic for any planning analysis is your after-tax cash flows for the preceding year. When properly reviewed, income and spending patterns can emerge and be assessed by family members and the financial advisor. Pay stubs and health care expenses are examples of data points that should be discussed. A well-informed financial advisor can position your portfolio to supplement your cash flow requirements.
3. Get Up to Speed – Just as spring brings change and the opportunity for reassessment, financial plans should be updated as significant events occur. Examples are the birth of a child, the sale of a business and modification to the tax code. A few key topics to be revisited in your financial plan include liability analysis, risk management, education funding, generational transfer as well as charitable planning.
4. Get Future Focused – An advisor should review your specific goals, values and time frames prior to offering any advice. Importantly, a financial plan can help quantify and qualify your financial position and offer projections well into the future. Of course, predictions regarding the future are not definitive and cannot be relied upon. However, future projections can be effective in creating a dialogue about “what if” scenarios. For example, return assumptions that illustrate a 2% portfolio return verses a 10% return could meaningfully impact one’s retirement lifestyle.
5. Clear the Clutter – An important aspect of spring cleaning is getting rid of the clutter. The financial planning equivalent is account consolidation. It is not uncommon for individuals to have duplication within their retirement accounts. For example, one might have three 401(k) accounts with three separate financial institutions. In many cases, it is prudent to “rollover” these three accounts into a single IRA account at a preferred financial institution. One of the advantages of utilizing this strategy is that assets can be managed as one unit. This setup offers additional efficiency and transparency when structured properly.
The best part about spring cleaning your financial life is that there are no dust bunnies or heavy lifting involved. All that is required are time and resolve. And if financial planning is anything like cleaning out the garage, the more time you put in now, the less time you’ll spend sorting through clutter in the future.
Terry Ritchie is the Director of Cross-Border Wealth Services at the Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada. Terry has been providing Canada-U.S. cross-border financial, investment, tax, transition, and estate planning services to affluent families for over 25 years. He is active as an author, speaker and educator on international tax and financial planning matters. www.cardinalpointwealth.com