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Putting
the World Back in Order Your
Fiscal Plan for 2003 |
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Toasting, celebrating, making resolutions—all traditions of the New Year. Other
traditions should rightly include resolving to take care of your financial health
as well as your personal and family health. Celebrating a healthful financial
New Year doesn’t require a lot of fanfare, streamers or the well-intended,
but ultimately half-hearted, tendency to over-commit. Rather, a balance of
thoughtful planning mixed with a little discipline should be the prescription
of choice. Start with a dose of
self-analysis. Taking a good look at your near-term and long-term goals. Ask
yourself some questions that will help you diagnose your current state of
financial health. Are you putting enough aside for your eventual retirement?
Are you maximizing tax advantages through gifting or deferred programs for a
child’s college education by using a 529 or similar plan? Have you covered
your bases in case an unforeseen event, like an accident or illness, strikes?
"No" answers to these questions are symptoms of financial
deficiencies. Do your current spending habits
leave you feeling overwhelmed, anxious or alarmed? Do you experience an
increase in your blood pressure every time your MasterCard bill arrives in
your mailbox? Does spending money help you feel less depressed or more
fulfilled? "Yes" answers to these questions point to a spending
problem, which can be symptomatic of a more serious financial dysfunction. Probing questions such as these
often help lead to a diagnosis of your current state. We know what we should
be doing -- so why aren’t we? Is it fear, or just being overwhelmed and not
knowing where to start? The first step is to carefully
assess your strengths and weaknesses. To do this you need to prepare an
income statement/budget along with a balance sheet. Once you’ve gained a
clear insight as to where you are, you will be better positioned to consider
where you want to be. Next list out your goals and
objectives and the timeline for each. To do that, consider questions such as
how many years of work you have left, the priority of each goal and your
comfort with risk (defined as the uncertainty of the outcome). A financial
planner can assist you in this process along with projecting what you have to
do to accomplish your goals. The past eighteen months have put
a rather sickly pall over many of our plans. Among the bitter pills were
terrorist attacks, corporate scandals, fears of an expanding war on
terrorism, which have shaken our confidence as well as our faith in the
future. One of the outcomes is the current bear market for stocks -- the
longest bear market in over sixty years. We need to adjust our assumptions
for the reality of lower interest rates and lower stock market prices. If you have seen your plan become
increasing anemic over the past couple of years due to financial market
conditions or job/business downturns, do not give up. Realistically assess
your current position and identify the weaknesses of your plan and adjust
accordingly. All financial plans have to include flexibility for changes.
Sometimes those changes are necessitated by exterior influences such as stock
market performance, changes in interest rates, and threats of war. Unfortunately, we have little to
no control over exogenous changes to our financial context so it’s generally
recommended to focus on those endogenous factors for which we have a better
chance to produce potential remedies. For example, if your income is
threatened by potential job loss, your plans should include strategies for
making a job change, decreasing spending, or reviewing asset allocations to
ensure ready access to cash. To begin the New Year on a fit
note, take time to self-analyze your situation and create realistic, fact-based
goals to help you achieve your goals. Rely on the advise
of a certified financial planner to help you prepare your personal
prescription for financial health in 2003. Michael Haubrich,
CFP, is president of Financial Service Group, Inc., a registered investment
advisory firm in |