Financial Planning
Checklist
Once you've finished with your tax planning
for the year, and your return is safely on its way to the IRS, you're at an
excellent point for a quick financial check-up. Your tax return is handy, as
a quick snapshot of your financial situation, and the figures are recent and
accurate. Take a few minutes to consider these questions:
1. Have you determined your short- and
long-term financial goals?
Have you consistently reviewed and updated
them for any changes?
2. Are you saving and investing sufficient
sums to fund your short- and long-term goals?
By defining goals that are time and dollar specific, you can regularly
assess if you are on track to reach them.
3. Are you making the best use of tax-deferred
savings plans, such as IRAs, 401(k)s, and Keoghs?
Are you contributing the maximum you can? Did you make plan investment
choices consistent with your investment time frame and risk tolerance?
Alternatively, are you satisfied that you have worked out the most
appropriate way to take withdrawals for both yourself and your designated
beneficiaries, with a careful balancing of income tax and estate tax
considerations?
4. If you are an employee, are you getting the
optimum from your employee benefits?
Do you understand and use any flexible
spending accounts that you may be eligible for? Have you developed a
strategy for exercising your employer stock options and using any deferred
compensation plans?
5. If you are concerned about paying for a
child's education, are you saving and spending in the most appropriate
ways?
Are you using tax-deferred savings,
tax-favored loans, and tax credits? Are you striking an appropriate balance
between saving in the child's name (either outright or in trusts) and saving
in your own accounts?
6. Do you have an "emergency fund?"
Many experts recommend that you
have the equivalent of three to six month's take-home pay in an account
where you can get at it quickly. An emergency fund gives you cash to weather
a squall or two without having to disturb your investment portfolio or sell
off any other assets.
7. Have you checked the asset allocation of
your portfolio lately?
Run-ups and downturns in the market can each disrupt the allocation of your
investments, leaving you with more or less in any one asset class than you
consider optimal. Should you be thinking about tax-free or taxable fixed
income securities, based on your marginal tax rate and risk tolerance?
8. Do you have adequate insurance?
Adequate life insurance (to protect your family if you die unexpectedly)?
Adequate disability insurance (what if you or your spouse couldn't work for
an extended period of time)? Appropriate household and automobile insurance?
Should you be thinking about an umbrella policy?
9. Do you have appropriate legal documents in
place?
An up-to-date will? Trusts for you
and/or your spouse and other heirs? A living will or other health care
directives? A durable power of attorney (for managing your assets if you
can't)? Have you told family members or trusted friends where they can find
these documents?
10. Is your credit under good control?
Is the interest rate on your
mortgage the best you can do, or should you be applying for a lower rate?
Should you be shopping for a credit card with a lower interest rate, or
perhaps for a home equity loan?
11. Are you maximizing your cash flow through
income tax strategies?
How are you funding charitable
contributions -- with cash or securities? Do you prepay itemized deductions
to accelerate the tax benefit?
12. If you own your own business, do you have
a plan for smoothly passing on that business to family members or trusted
employees?
Are you aware of and planning for
any income and related estate taxes? Are you making optimum use of insurance
to safeguard your transition plans?
13. Have there been significant changes in
your family this year?
Births, deaths, graduations,
engagements, and the beginning and ending of marriages can all have
multifaceted effects on your financial plans. Consider their effect on your
own situation. You may want to start a college fund for a new baby, or make
a plan for investing assets you've inherited, or make provision for your
daughter's wedding next summer. On the other hand, if you have recently
divorced, you will want to review the beneficiary designations on your
insurance policies and retirement plans.
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