There is a big difference between knowing what to do and then doing it. Take a look at the health food and diet business and how it is booming. It’s not like people can’t learn what to do on their own – but making a routine out of tracking intake and sticking to an exercise plan takes guidance, practice, and an ongoing commitment to be beneficial. Of course, the same can be said for financial issues except that the science of weight loss is not likely to change whereas the science behind the moving parts of your financial life are almost guaranteed to change.
Like getting healthy, the hardest part about getting your fiscal house in order is starting. So approach your finances the same way – start slow. You don’t want to rush because as you’ll eventually learn, there are so many moving parts to your financial life that you may run the risk of missing something or doing the wrong thing if you shortcut the process. A good starting place is to organize all of your financial information in one place under these categories; income and expenses, assets and liabilities, insurance policies, retirement plan documents, investment statements, tax returns and your estate planning documents.
Some of these items may not exist or be tough to get your hands on. Income and expenses, for example, may be something that you simply need to estimate and then check on every 90 days or so to gauge your estimates accuracy. Carve out the time needed to do this, one area at a time. Be fair to yourself and stick to your deadline. For many, this is probably only a few hours of digging or calling for copies.
Now take a critical look at each area and figure out if your approach is sound. Evaluate spending against what you can afford to spend and need to save. Based on your asset composition and cash flow needs, are your insurance policies and risk mitigation plans as good as they need to be? This would involve a detailed review of each risk to assess the protection needed. Now compare what you need versus what you have. Then make any changes needed to bring your risk management plan to the level that you require, which may include changing the ownership structure of some of your holdings.
That same process of analysis, evaluation and improvement would continue through the other moving parts – namely the investment plan, income tax plan, retirement plan and the estate plan. Evaluate exactly where you are and what you have, then look at what you need and reconcile the differences. These usually become a source of frustration for many as the level of knowledge required is frequently beyond investing or estate planning 101. At this point, you can throw in the towel and forget about it, or go ahead and find a trusted advisor to help you through the maze.
John P. Napolitano CFP®, CPA is CEO of Napier Financial in Braintree, MA. Visit JohnPNapolitano on LinkedIn. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.