Not all financial issues stand out and ask you to fix them. In fact, your financial problems are a lot like potholes in the night. Unlike the potholes visible in bright daylight, financial potholes are like night time road potholes Ė you donít really see them until you hit one, and then it may be too late.
1. Outdated or No wills and trusts. Naturally you donít feel this problem until someone passes away. But just because you are alive today doesnít mean that there isnít a problem with your estate plan. In my experience, the majority of people reading this have ineffective estate plans. Some havenít decided on a guardian for their minor children, some will pay death taxes that could have been avoided and some will deal with months or years of unnecessary probate and administrative costs that may become a burden to your heirs. Donít be like Michael Jackson or Tony Soprano and seek professional guidance from a financial professional to get your estate plan in order ASAP.
2. A static portfolio. Making unnecessary changes in your portfolio may increase your trading costs and your tax bill, but never making any changes can keep you in harmís way for a lot longer than needed. For many, the largest investment account that they have is their 401K. Donít be the person who sets your allocation the day that you start work and not look at it again until you change jobs. Understand what you need to earn to reach your goals and just how much volatility you are willing to accept, and re-visit your holdings at least quarterly.
3. Being underinsured. Like income taxes, I feel that it is your fiduciary obligation to your family finances to keep your insurance premiums at the lowest amount that is appropriate for the risks you may incur. Too many people wing it when it comes to deciding how much life insurance or disability insurance to own. Similarly, too many people are accepting gaps in their property and casualty coverage in the pursuit of saving on your insurance premiums. Sit with a financial professional to see if youíve got any risks that are waiting in the night to flatten your familyís dreams.
4. Spending confusion. Whether you make way more than you need or you are not sure what you need, understanding your cost of living and what it will take to find that cost of living when you stop working is critical. A dream buster is finding out after you retire that you should have saved more or worked for a few more years before using your nest egg to fund living expenses. On the other hand, if your analysis concludes that you indeed have more than you need, perhaps it is time to start a gifting program to reduce future death taxes. Create a financial forecast to know where your cash flow and expenses will take you.
John Napolitano, CFP is Chairman and CEO of US Wealth Management. John is a Past -President and member of the Financial Planning Association of Massachusetts. US Wealth Management is headquartered in Braintree, MA.
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