Surviving change with financial planning

By Mitzi Carletti

Life is a continuous series of changes to which we adjust without a great deal of thought or anxiety. However, change that is abrupt or unexpected, such as the death of a spouse or a divorce, can leave us confused and vulnerable. Although no one has a crystal ball to predict what lies ahead, we do have the power to be proactive and prepare for whatever challenges may transpire. This is particularly important when it comes to your money.

We have all heard the phrase “ignorance is bliss,” but it could not be further from the truth when you are talking about your finances. Here are a few questions to ask yourself to help be prepared for potential life-altering change.

How much does it cost to be you?

Although this may sound like a ridiculous question, it is one that most of us have difficulty answering. To gain some insight, review your credit card and bank statements for at least the past year and use this data as a guide to arrive at a dollar amount it would take to maintain your lifestyle as a single person. Although food, clothing and travel may be half of the total cost of a couple, housing, property taxes, insurance and utilities will not be significantly different.

What is your net worth?

Take inventory of what you own. It’s important to uncover absolutely everything because it can make a difference in what you receive in a divorce and how comfortable your life may be after the loss of a spouse. In the case of divorce, you should make this discovery prior to declaring your intentions to ensure the documents and statements are easily accessible and to decrease the likelihood of assets being “hidden” from you. The best place to start is by reviewing the last few years of income tax returns. Any account in which you received income and capital gains will be listed on the return. In addition, any notes or loans that may have been made to another party will also be noted. As part of this process:

1. Research the current value of your real estate holdings (minus the mortgage balance). Although it may not be completely accurate, using sources such as Zillow is a quick and easy way to get a general idea.
2. Survey your personal property (e.g. jewelry, art, automobiles) and value these at the current resale value, not what you paid. Certain items, such as art or jewelry, may be quite valuable but are often overlooked (or overestimated) when calculating your net worth.
3. Review any life insurance policies or annuities for potential cash value. This cash can often be accessed as a loan without surrendering the policy. In some cases, it may make sense to surrender, but it may not be necessary to access the money.

Is it time to invest in professional guidance?

It’s important to do your homework and know where you stand financially. However, it is equally important to make the most of what you have by seeking professional advice. Selecting the right team of trusted advisers is extremely important. We recommend that you begin by asking for referrals from people you trust and respect. Keep in mind their situation may not be exactly like yours but it is a great place to start. A good attorney, accountant and financial adviser come at a price but it can be much costlier going it alone.

Getting the most from your team requires being prepared. Have the necessary financial information organized in a presentable form. This will speed up the process of discovery for the professional and may be more economical because you are providing the groundwork and they can focus on the big picture.

Do I have a viable plan?

Working with an accredited financial planning practitioner, such as a CHARTERED FINANCIAL CONSULTANT^® or CERTIFIED FINANCIAL PLANNER™ professional will provide you with a thoughtful and detailed plan. A comprehensive plan is a roadmap to guide you through investment decisions and budgeting. A good plan will provide perspective and outline any changes you may need to consider to ensure a more secure financial future.

Proactively engaging an attorney to deal with estate planning issues, real estate and business transactions (and divorce) before you find yourself in a difficult position is also a good idea. It’s so much less stressful, and often less costly, to start a process with good counsel than to involve someone to “fix” a situation gone awry.

Make a to do list

It’s important to set a target completion date for each of these tasks. Creating a plan is critical but it is not going to be effective without a deadline. To get started, review the following financial checklist and begin taking charge of your life.

Financial checklist 

Cash Flow Planning

• Identify all sources of current income
• Organize all expenses, monthly and annually
• Use a resource to help, such as Quicken or a budget book
• Evaluate trends or expected changes to current income and expenses
• Identify any large expenses planned for next year
• Establish an emergency fund

Investment Planning

• Gather all your most recent investment statements
• List all your non-investment assets (real state and personal property) with the current value
• Meet with an investment adviser to create or reevaluate your financial plan; prepare a list of topics to focus your discussion

Retirement Planning

• Review target date for retirement
• Review amount of income needed for retirement
• Identify sources of retirement income
• Evaluate your strategy to reach your retirement objective
• Integrate retirement planning with your investment planning

Tax Planning

• Identify any actions to reduce taxes
• Evaluate and maximize 401(k), IRA or other retirement plan contributions. If you are over 50 years of age, take advantage of increased catch-up contribution limits
• Monitor tax loss carry-forwards and consider harvesting losses to offset gains

Estate Planning

• Determine ownership of assets (including real estate) and beneficiary designation
• Take note of where your estate planning documents (wills, trusts, durable power of attorney, etc.) are located
• Review estate planning documents to make sure they are accurate and current

Life is uncertain, but it’s possible to weather change with some advance thinking and planning before major events transpire.