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Your Annual Fall Financial Review
Throughout the year, most people agree that it's virtually impossible
to find time to get anything done. The weeks between Labor Day and
Thanksgiving, however, provide a temporary window of opportunity for
people looking to get stuff done. Just think about it...summer's
over, the kids are back to school, no major holidays, and family
members are settling into their post-summer routine.
Since working through a financial plan is a challenging project that
demands lots of time, many people find that the fall is a great time
to either put together an initial financial plan or to update their
financial plan from last year.
Let's review the steps that you should try to take between now and Thanksgiving.
Step 1: Calculate Your
Financial APGAR Score
Anyone looking to gain control of their finances
must first make an initial self-evaluation of where they stand. The
benefit of calculating your financial APGAR score is that you will
take a look at the following five important areas applicable to your
- Payment of credit cards and other debts
- Got Life and disability insurance
- Automobile habits
- Residential equity
If you have previously worked through your
financial APGAR test, you should take this opportunity to work
through it again. Hopefully, you score will be higher now than it was
last time you did this test.
To work through your Financial APGAR Test, go to http://www.mdtaxes.com/financial.html.
Put Together Your
The "Ow-Ow" statement stands for what
you OWn and what your OWe on a given day. Also known as the Net Worth
Statement, or the Balance Sheet, this statement reflects the fair
market value of all of your assets and liabilities.
Your assets should be categorized as follows:
Your liabilities should be categorized as follows:
After listing all of your assets and liabilities,
calculate your net worth by subtracting your total liabilities from
your total assets. For most people, as they move on in their careers,
their net worth generally increases each year.
Prepare Your Monthly Cash Flow Budget
To complete your monthly cash flow budget, you
will first want to review your household's cash inflows and cash
outflows for the previous six months or so. Using that information,
you will budget your household's monthly inflows and outflows for the
next six to twelve months.
Your inflows are comprised of your salary less
withholdings, your net self-employment income, and whatever other
sources of income you might have.
Your outflows include costs associated with your
household, children, automobiles, clothing, groceries, insurances,
debt payments, and whatever other expenditures you make on a regular
basis. Don't forget to include in your budget any one-time
expenditures that you plan to make, such as a home improvements, the
purchase of furniture, or vacations.
Once the budget is in place, every month, compare
the actual cash inflows and outflows to the budget that you put together.
Using a program such as Quicken or Microsoft
Money will really make this step much easier.
Allocate the Surplus Among Your Savings and Debt Reduction Goals
Assuming you have a monthly surplus, this is the
toughest step. In this step, you will allocate your projected surplus
among the following four goals:
Short-term savings goals, including vacations,
furniture, and emergency savings
Long-term savings goals, including saving for a
child's education or for a first or second home
Retirement savings goals
Debt reduction goals, including paying down your
mortgages, student loans, and consumer debts
We recommend preparing a six column worksheet as follows:
Column 1: Description of the savings/debt reduction goal
Column 2: Targeted balance (for debts, the targeted balance will be $-0-).
Column 3: Amount already saved or current balance owed
Column 4: Desired completion date
Column 5: The minimum payment due, or amount automatically being paid
(such as your weekly 401(k) withholding)
Column 6: Extra monthly payments to be made each month. (The total of
this column should equal your projected monthly surplus.)
Calculate How Much Your
Retirement Savings Will REALLY Be Worth When You Retire
If you are like most people, you try to contribute as much as
possible to your retirement accounts each year. But do you have any
idea what your retirement accounts might be worth when you retire or,
more important, how much annual income your retirement accounts might
provide to you once your stop working?
We've made this step easy for you. Just go to our on-line
retirement calculator (with recent statements from your
retirement accounts in front of you), plug in 8 numbers, and you will
find out whether you are putting away enough money each year to
provide for a comfortable retirement.
Work Through an Income Tax
Projection (to Avoid Any Surprises Next April)
Nothing can throw a wrench in your financial plan like getting hit
with a surprisingly large tax bill in April. If you are one of our
clients, don't forget to send in the information that we requested in
July so we can let you know where you stand. If you use another
accountant, or do your own taxes, now's the time to work through a
tax projection. Since it's only September, you still have three
months to adjust your withholdings and estimated tax payments to
cover any projected tax shortfall.
Meet with Your Financial Advisor
to Review Your Life and Disability Insurance
Life and disability insurances are both critical to the financial
well being of your family. Periodically, you should meet with your
financial advisor to make sure you have adequate life and disability
insurance in force. If you will be working through the first 6 steps
of your annual fall financial review, go for the gold and schedule a
meeting with your financial advisor as well.
TO DO LIST FOR SEPTEMBER, 2000
Saving and Investing
1999 & 2000 TAX FACTS
For 1999, the standard deduction for a single individual is $4,300
and for a married couple is $7,200. A person will benefit by
itemizing once allowable deductions exceed the applicable standard
deduction. Itemized deductions include state and local income taxes,
real estate taxes, mortgage interest, charitable contributions, and
unreimbursed employee business expenses. For 2000, the standard deduction for a single person
will be $4,400 and for a married couple will be $7,350.
- For 1999, the personal exemption is $2,750. Individuals
will claim a personal deduction for themselves, their spouse, and
their dependents. For 2000, the personal exemption has been
increased to $2,800.
- The maximum earnings subject to social security taxes
has been increased to $76,200 in 2000 from $72,600 in 1999.
- The standard mileage rate has been increased back to
$.325 per mile as of January 1, 2000 from a rate of $.31 per
mile as of April 1, 1999.
- The maximum annual contribution to a 401(k) plan or
a 403(b) plan has been increased to $10,500 in 2000 from
$10,000 for 1999.
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