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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 household finances:

  • Accumulated wealth

  • 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.


Step 2: Put Together Your "Ow-Ow" Statement

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:

  • Bank accounts, money market accounts & Certificate of Deposits (CDs)

  • Non-retirement investment accounts, including brokerage accounts and mutual fund accounts
  • Retirement accounts, including your 401(k)/403(b) accounts and your IRAs
  • Real estate, including your home, vacation property, and time shares
  • Tax-deferred annuities and life insurance cash value
  • Other assets

Your liabilities should be categorized as follows:

  • Real estate mortgages and home equity loans

  • Student loans
  • Credit card balances, auto loans, and other consumer debt
  • Other liabilities

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.


Step 3: 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.


Step 4: 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:

  1. Short-term savings goals, including vacations, furniture, and emergency savings

  2. Long-term savings goals, including saving for a child's education or for a first or second home

  3. Retirement savings goals

  4. 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.)


Step 5: 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.


Step 6: 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.


Step 7: 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.



Income Taxes

Saving and Investing



  • 3rd qtr estimates due 9/15/00

  • SIMPLE/IRAs need to be set up by 10/1

  • Good time to work through your annual fall financial review

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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