Managing personal finances today is more complicated and more important than ever. We’re living longer, but saving proportionately less. Scores of us feel less secure in our jobs and homes than we did a year ago. We see our money being drained by the high cost of housing, taxes, education and health care. We worry about the future, or unfortunately in many cases, simply try not to think about it.

Sensible financial management means much more than budgeting and putting money away for retirement. It’s being equipped to handle a lifetime of financial challenges, needs and changes, figuring out how to build assets and stay ahead of inflation, taking advantage of deflation, and choosing wisely from a constantly widening field of savings, investment and insurance options. When it comes to finances, people are faced with more pressures and more possibilities than ever before.

The good news is that as complex as today’s financial world is, there’s no real mystery to sound personal money management. You don’t need a masters degree in finance or accounting to get ahead.

What’s needed are solid basic principles of organization and decision-making, plus the willingness to put them into action. Anyone with a fundamental education and the desire to handle money wisely can do it.

Effective financial management does involve certain procedures that you don’t automatically learn from your parents or associates — and they certainly aren’t taught in our schools. It’s more than just a matter of gathering enough information and then making a logical decision. In fact, for many people, the constant bombardment of economic news, fragmented financial information and investment product advertisements is part of the problem. Information overload can be a major obstacle to sorting out choices and making wise decisions.

To save you valuable time and to help better manage your finances, Your financial PARTNER — the personal financial management system — was developed. It’s a clear, step-by-step process designed to put all the essential areas of personal finance in front of you.

The process centers on helping you to get organized, on staying aware of your money issues, and on making deliberate choices about the ways you spend, save and invest instead of following your emotions or simply “going with the flow.”

The illustration here represents the Your financial PARTNER System, an 11-part process divided into two spheres: Getting Organized and Financial Planning.

GETTING ORGANIZED

1. Paperwork: Everyone has some primary financial documents — bank and brokerage statements, retirement plan statements, tax returns, insurance policies, etc. Keep this information in a central location and tie it into your filing system.
2. Net Worth: Know where you stand by inventorying what you own and what you owe. Do this at least annually.
3. Cash Flow: Gain control of your cash flow by spending according to a plan, not impulsively.
4. Employment Benefits: Understand and utilize your employment benefits fully; they can improve your cash flow. Any amount your employer contributes toward your health insurance, life insurance, retirement and other benefits is money you don’t need to spend.

FINANCIAL PLANNING

1. Goal Setting: Before you begin the financial planning process, ask yourself what’s important to you, financially and personally. This is a key element of planning your future; it affects your decisions and choices.
2. Financial Independence and Retirement Planning: A comfortable retirement, perhaps at an early age, is one of the most common reasons people become interested in financial planning. Determine what is a reasonable level for your financial independence and how to make it a reality.
3. Major Expenditures Planning: A home, a car and your child’s college education — these are all “big ticket” items that are best planned for before you have to pay the bill. Develop financial strategies for effectively achieving your biggest objectives.
4. Investments Planning: For most of us, wise investing is the key to achieving and maintaining our financial independence, as well as our other financial goals. Establish your investment goals, assess your risk tolerance, and then select an asset allocation model that best fits your goals, your style and most important your needs.
5. Tax Planning: Your financial planning should include tax considerations, regardless of your level of wealth. Proactively take advantage of opportunities for minimizing you tax obligations.
6. Insurance Planning: Decide what to self-insure and what risks to pass off to insurance companies and at what price.
7. Estate Planning: Develop or update your estate plan. If you die without an up-to-date estate plan, the distribution of your assets can become a time-consuming and costly financial challenge for your loved ones and survivors.

 
This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP^®, AEP^®.

Quick: do you know where’s your deed to your house or your pink slip to your car? When’s your auto registration due? Where’s your employee benefits booklet? A key and fundamental step in sound financial management is getting organized and staying that way.

Good organization is the foundation for making wise fiscal decisions. Even with the help of technology, we still have to deal with a rising mound of personal and financial paperwork.

Paperwork starts with our birth certificate and keeps getting bigger and more complex with each coming year. Bills, statements, medical records, taxes, kids’ SAT scores, warranties and receipts — the flow of information can easily seem overwhelming, especially when scattered files or critical pieces of paper go astray. And who has time for long-term planning when there are bills to pay and last year’s tax records to get ready for the tax preparer?

Investing a little time now to set up or fine-tune a system that works for you will simplify your record-keeping and financial management forever. You’ll also benefit by:

• Saving time when you pay bills, work on tax returns or make financial decisions.
• Avoiding overlooked expense reimbursements or tax deductions you’re entitled to.
• Being sure that in a family emergency, critical documents and information are accessible to those who need them.
• Eliminating stressful last-minute searches for information or documents.
• Avoiding penalties because of missed or late payments, or being caught short of funds when large obligations unexpectedly come due.

GETTING STARTED

Think of organizing your finances in four general areas:

1. Paperwork. This is all about managing information. We all have birth records, school records, health records, insurance policies, tax records, bank statements, paid bills, correspondence.This information is commonly disorganized and difficult to access quickly. The key here is to give yourself some flexibility by setting up and using a filing system divided into five categories — Primary Documents, Action Files, Main Files, Historical Files and Family Memorabilia and Projects — as outlined in the sidebar.Also, using a “Things To-Do List” and calendar to track things you need to accomplish and remember can be helpful. Keeping these near a current list of the names, addresses, phone numbers and e-mail addresses of your family, friends and financial and household advisers can also be a real time saver.

   Obtain a credit report each year to see if it is accurate and up-to-date. This can save you time and trouble in the future. You can get a free one at www.annualcreditreport.com or www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm.

2. Net Worth. This is what you own, less what you owe.Once a year it’s a good idea to inventory what you own and what you owe, and create your own personal net worth statement. Compare it to last year’s statement and see if you are improving your financial position.When you do this, list the “fair market value” of what you own, not what you paid for items.
3. Cash Flow. This involves more than just creating a budget. Understanding what you earn and how you are using your money gives you more power over your life.Ask yourself: Where can I achieve just as much or more satisfaction by spending less money? Putting and chipping on the practice green instead of buying a bucket of golf balls at the driving range? Renting a video instead of going to the movies? Making a gourmet lunch instead of eating out? Waiting another year to buy your next car or take that special trip?Managing your money wisely, not emotionally, is the key to gaining control over your financial life and giving you the best chance of reaching and maintaining your lifelong goals.
4. Employment Benefits. For millions of workers and small-business owners, employment benefits are a hidden paycheck. Any amount your employer contributes to your insurance — health, vision, dental, disability, automobile, long-term care and life — future retirement, financial planning and other benefits is money you don’t need to spend with your after-tax dollars.It is a good idea to review your benefits package annually to see that you are taking full advantage of what’s available in your particular situation.

ORGANIZE YOUR PERSONAL FILING SYSTEM Organizing your files into the following five categories: Primary Documents include birth certificates, stock confirmations, employee benefit statements, last two tax returns, insurance polices, wills, trusts, powers of attorney. They should be kept in a financial organizer and readily available in a safe, secure location such as a two-hour-rated fireproof safe. Action Files are bills to be paid, current year tax information and pending information. Main Files hold information pertaining to the 11 areas of personal finances: personal information, assets and liabilities, cash-flow planning, employment benefits, goals, insurance, financial independence and retirement planning, major expenditures, investment planning, tax planning and estate planning.   Historical Files hold non-current information that you want to keep, such as tax returns more than three years old, past personal and business agreements, etc. Family Memorabilia and Projects are those hard-to-file but important-to-keep special projects such as kids’ school papers and landscaping and remodeling plans. Abridged Home Filing System Outline

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners.

Here’s a quick outline designed to help you smooth out your paperwork mountain. Investing a little time now to establish or update your paperwork system can save you time and money, simplify your record-keeping, and improve your personal financial management going forward.

THINGS TO DO LIST

Use a “Things To Do” list as a reminder to prevent important tasks from slipping through the cracks. Keep a copy of your list in a handy location so that as you determine what needs to be done, you can record each task.

PRIMARY DOCUMENTS

Gather and centralize your most important money-related documents by filing them in a financial organizer; this can be in a binder, pouch or portfolio. Then you’ll have quick and easy access to key documents such as birth certificates, stock confirmations, employee benefit statements, your last two tax returns, insurance polices, wills, trusts, advance health care directive and powers of attorney.

This is a big step toward getting your financial life in order. Having your documents available at your fingertips will save you time in completing loan and insurance applications, or getting an accurate picture of your current financial situation.

This will save you and your heirs money. By gathering your primary financial documents in a centralized location, your key information will be available when you meet with financial advisers, if you become ill and someone needs to assist you with your finances, or when you pass away.

Keep your financial organizer in a fireproof safe or box at home. In case of an emergency be sure key adult household members know its location.

Make copies of your critical one-of-a-kind documents, such as evidence of automobile ownership, negotiable instruments (stock and bond certificates) or notes you received from others you’ve lent money to. Then inventory them on a checklist kept in your organizer and store the originals in a safe-deposit box.

PERSONAL FILING SYSTEM

A personal filing system contains information that supports your primary documents, e.g., correspondence, worksheets, insurance claims, etc., as well as other miscellaneous paperwork, historical information and family memorabilia/projects. The purpose of this system is to provide easy access to information that could be needed in the future.

If you do not have a personal filing system in place, or if your system could be improved, address it now. You’ll need some dividers and file folders, which can be stored in a file box, desk drawer, regular or fireproof file cabinet, or storage boxes.

1. Label the first divider “ACTION FILES.” These are your most frequently used files. They may include:
   • Bills To Be Paid
   • Paid Bills, Current Year Current Year Tax Info
   • Invoices/Credit Card Receipts
   • Monthly Statements
   • Pending Items
   • Coming Events
   • To Be Filed
2. Label your next divider “MAIN FILES“; this is for the paperwork you may need sometime in near the future. These files include:
   • Personal Information
   • Assets & Liabilities/Net Worth
   • Cash Flow Planning
   • Employment Benefits
   • Goal Setting
   • Financial Independence/Retirement Planning
   • Major Expenditures
   • Investment Planning
   • Tax Planning
   • Insurance Planning
   • Estate Planning
3. Set up a divider for “HISTORICAL FILES” to keep old, bulky paperwork, such as your last two years’ tax return support documents, previous years’ tax returns and old insurance policies.
4. “FAMILY MEMORABILIA/PROJECTS” are those hard-to-file but important special projects, such as children’s school papers, or landscaping and remodeling plans. These documents can be kept in clearly labeled file boxes in the attic, basement or other safe, out-of-the-way location.

FINANCIAL CALENDAR

Use a calendar to manage important financial dates and take the weight of your schedule off your mind. This can be created with a regular calendar or with a single sheet of paper or spreadsheet.

In the left-hand column, list your various financial obligations –- auto registration date, insurance policy renewal dates, property tax due date. Then create 12 additional columns to the right and label them for each month. Place the date or an X in the particular month that each obligation will occur.

You might also want to add a notes column to include dollar amounts or reminders. Using a financial calendar will allow you to quickly see what is in front of you and minimize surprises on scheduled or recurring financial obligations.

FAMILY FACT SHEETS

Next, create fact sheets that summarize key data for you and your family (see box). This information will then be readily available for use with financial applications, adviser interviews, tax return preparation and much more.

File your completed fact sheets in your financial organizer.

CREDIT REPORTS

Obtain a credit report every year to see if it is accurate and up-to-date from each of the 3 major credit reporting companies at www.equifax.com/home/, www.transunion.com/, & www.experian.com/.

This will save you problems and time in the future.

If you can find the time to complete these steps, you’ll not only be organized, you’ll also have a flexible system you can use for a lifetime. The information base you need to make important financial decisions will always be at your fingertips.

This is the third in a series of columns outlining the Your financial PARTNER Personal Financial Management System. Next we’ll address gathering your assets and liabilities.

CHECKLIST FOR CREATING FAMILY FACT SHEETS Use a sheet of paper or computer file to inventory your immediate family data, such as: Names and Addresses Birth Dates/Birth Certificates Phone/Fax/E-Mail Numbers Employment History, Resumes, References Education: Diplomas, Transcripts, Certificates Military History: Discharge Papers Marital Status/Dates Custody and Support Agreements Social Security Numbers Immigration Certificates Driver License Numbers Blood Type and Major Illnesses Professional License Numbers Passport Number Safe-Deposit Box Number and Bank Security Codes: ATM and Other PINs Next list your family and friends, family advisers, home maintenance specialists and financial advisers. Include their names, addresses, phone/fax/e-mail numbers.  Family Fact Sheets (Excel format).

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners.

Assessing your financial position (or net worth) begins with listing the kinds of assets (things you own) and liabilities (things you owe) that underlie your numbers and understanding how they affect your overall financial picture.

This process will either reassure you that you’re under financial control and success are within reach, or it may bring to your attention financial problems that addressing. Either way, you’ll know your status and be in position to take control and advance your situation.

INVENTORY YOUR ASSETS

Start by getting a pad of paper or opening a computer spreadsheet. Have a calculator, your things-to-do list (if you’re missing information, note it as a reminder) and your financial organizer (the place you keep your important documents) close at hand.

At the top of the page title it Net Worth Statement, followed by your name and the date, skip a few lines or rows, then label a column Assets. Go down a few lines or rows and list each of your assets under the categories in the box below. Note their current dollar values to the immediate right.

Create a separate page called Additional Net Worth Information. Use it to list any assumptions or document any special circumstances.

When you’re finished inventorying all of your assets, add a line called Total Assets and total your entire asset column. Are you surprised with the number?

LIST YOUR LIABILITIES

Skip a few lines and write Liabilities; follow the same procedure as you did for assets. Add a line called Total Liabilities and total your entire liability column. Are you surprised with this number?

DETERMINE YOUR NET WORTH

Now add a final line called Net Worth. Subtract your Total Liabilities from your Total Assets. The number you are looking at is what you would be worth if you sold everything (before any tax effects).

What do you think of this number? Is there anything you can do to improve it today or in the future? How does it compare with last year’s number?

Net Worth Worksheet

The Board of Governors of the Federal Reserve System conducts the primary research in U.S. household net worth called the Survey of Consumer Finances (SCF), every three years. (See www.federalreserve.gov/newsevents/press/other/20090727a.htm)

TRACK YOUR PROGRESS

It’s useful to update your net worth statement annually and compare it to prior years to give you an overview of your financial progress.

Once you have completed the process, you’ll find that managing your money will be easier. Like straightening your closets or cupboards at home, this takes some effort at the outset, but requires only minimal energy and time if you keep things organized going forward.

As you put the pieces of your financial picture together, you may be surprised by some of the information assembled. Or you may simply have filled in details of what you already knew. In either case, you’re bringing a new level of organization to your financial life.

Just as important, gathering this data will heighten your awareness of your own financial needs, choices and issues. When it comes to managing your money, that awareness is one of the real keys to success.

 This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP^®, AEP^®.

With a complete and realistic cash flow plan, you’ll be able to enjoy your pleasures without guilt, knowing that you’re working toward other financial goals and managing your money properly. Cash flow management can be an important enabling force, helping you to cut spending on items and services you don’t really need in order to achieve what you want most in life.

You may even discover that you get an unexpected degree of satisfaction from saving and investing. People who succeed in creating and sticking with a cash flow management plan often find the process itself can reshape their priorities. Getting a bank statement that shows a hefty balance, or seeing a significant jump in your investment portfolio can be a bigger thrill than a major shopping spree.

As you become more systematic and strategic about making the most of your money each day, you’ll begin to see new opportunities. One of the biggest benefits of effective cash flow management is forming a different attitude toward money—a way of thinking that will help your spending and financial decision-making.

THE BIG PICTURE

In its simplest terms, cash flow management means figuring out what resources you have and deciding how you want to allocate them for spending, saving, investing and your future.

If you’ve tried a cash flow management program in the past and gotten bogged down, or never had a cash flow management system, or your cash flow needs some fine tuning the following simple Cash Flow Planner can start you on your way. The system was developed to help you quickly and easily get a good understanding of how your money flows.

You’ll need about 60 minutes, paper and pencil, calculator or computer spreadsheet, last year’s check register, monthly credit card statements, pay stubs, employee benefit statements, tax returns and a things-to-do list to jot down notes about any missing information you’ll have to gather later.

Place your name and the date at the top of the paper or spreadsheet. Then create nine columns and label them: Payment Period, Weekly (x 52), Semimonthly (x 24), Monthly (x 12), Quarterly (x 4), Semiannually (x 2), Annually (x 1), Budget Total (Sum) and Average Monthly (Budget Total divided by 12).

Cash Flow Planner (Excel format)

Next, underneath Payment Period, write Income and then list below it each of the income categories mentioned in the accompanying checklist. As you place the values in each appropriate column, multiply the number by the factor in the column heading, then record the results in the Budget Total column.

For example, if you get paid a $3,000 salary twice a month, place $3,000 in the Semimonthly column. Multiply it times 24 and put the total of $72,000 in the Budget Total column. Then divide it by 12 to get your Average Monthly of $6,000.

Continue this way for each income item listed, then add a Total Income line and total the Budget Total and Average Monthly columns.

Do the same for each of the expense categories. It’s OK to add additional categories if you like.

Last, add a Surplus/(Shortages) line and subtract the Total Expenditures from the Total Income.

EVALUATE YOUR FIGURES

Are you spending or saving more than you are making? Were you aware of how much cash flow you manage? Are you satisfied with what you see? Revisit your numbers and see if there are any appropriate adjustments to be made to balance your budget or to reach your financial goals.

This exercise should give you a understanding of how you are earning and spending your money.

THE MASTER PLAN

Now that you have an overview of your spending, saving habits and cash management, it’s time to make decisions that will enable you to meet your financial goals. The objective here is to adopt a cash flow plan that will allow you to live within your means and give you extra money to invest for your future.

If you are a big-picture person, you can use the Average Monthly income and expenditure figures from the Cash Flow Planner, understanding that some months will naturally be more or less than this average. Annually review and update your Cash Flow Planner, and you are good to go.

If you’re a more detailed person, you may want to expand the Cash Flow Planner by creating a column for each month with a Totals column for the whole year.

On a monthly basis, using the data from your pay stubs, checkbook register and credit card statements, check to see that you are within your cash flow plan. If you’re not, ask yourself why, then make immediate corrections before you get yourself into a bind.

Now you’re in a proactive mode, taking the initiative to move systematically toward the financial results you want. Over time your cash flow plan will change as your circumstances and goals change. Whatever your needs, if you follow your plan and spend within your means, you will have a money management system that will adapt to your needs.

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners.

Employers can spend the equivalent of 15 to 30 percent of salaries on employment benefits. When you consider the tax effect of the value of these benefits, their significance can be much greater to you.

Employers also frequently offer value-added benefits, such as employee credit unions, discounts and buying clubs that can offer attractive loans, higher savings rates, investments and consumer products at reduced costs, these can total up to serious dollars for you.

The payments your employer contributes toward your health insurance, life insurance, retirement programs or other valuable benefits is money you do not have to spend on your own.

Understanding and utilizing your employment benefits is an important way to reduce personal expenses, plan for your future and be prepared for financial emergencies. Being informed about your benefits also helps when you’re considering a job offer or career change. It’s not only the salary that matters, but the long-term value of your “total salary and benefits package.”

UNDERSTAND YOUR BENEFITS

It’s always a good idea to review your benefits regularly. Your employer may provide an annual statement of your benefits, it’s important that you understand it. Completing an Employment Benefits Summary can help.

Start with paper and pencil, calculator or computer spreadsheet, pay stubs and your employee benefits statement and employee handbook. Place your name, employer’s name, date employment began and the current date at the top of the page. Then create the following columns:

• COMPENSATION AND BENEFITS
• BENEFITS PROVIDED TO YOU
• COST TO YOU
• ANNUAL VALUE TO YOU

Under Compensation and Benefits, list the following items, one per line:

1. Cash Compensation: salary, profit-sharing and/or bonus.
2. Insurance: major medical/HMO, dependent coverage, dental care, vision care, disability income, workman’s compensation, unemployment insurance, employer’s FICA, term life, dependent life, split-dollar life, auto insurance, long-term care.
3. Tax-Deferred Compensation: qualified retirement pension, qualified profit-sharing plan, 401(k) or 403(b) plan, nonqualified deferred compensation, stock bonus plan, employee stock-purchase plan, stock options.
4. Time Off: vacation, holidays, sick pay.
5. Other Benefits: tax and financial planning, education reimbursements, flexible benefit plan, credit unions, employee assistance programs, group discounts, child care.
6. Then place Total.

To the right of each item, under “Benefits Provided to You,” note a brief description if you have that benefit. For example, next to Major Medical: “We have an HMO plan that covers the whole family with a $500 deductible, 15 percent co-pay and family maximum out-of-pocket of $6,000 per year.”

In the next column to the right, list any “Cost to You” (example: “$150 per month”). In the last column, estimate the “Annual Value to You” (example: “$10,000, maybe even more. Bill has a blood pressure problem and may not be insurable”).

If you are not sure of the value of any benefits, do some research. If it’s an insurance benefit, you can check with an insurance broker or online quote site. When you total the value of your benefits, you may be surprised.

VERIFY BENEFICIARY SELECTIONS

If group life insurance or retirement plans are among your employment benefits, pay close attention to your beneficiary selection. If you are married and have children, you probably selected your spouse as primary beneficiary and either left the secondary beneficiary blank, or named your children or another family member. Likewise, if your employer recognizes domestic partner relationships, your benefits may be affected.

If you name a minor as a beneficiary and you die prematurely, he or she will receive those funds at adulthood or the “age of majority,” which in most states is 18 or 21. Until the minor reaches that age, a guardian will manage the funds. When the minor becomes an adult, he or she will receive the proceeds as a lump sum.

If this concerns you, a trust, as part of your estate plan, could be named as the primary or secondary beneficiary of your life insurance and/or retirement plans. Based on your wishes, the trust could control how the income and principal will be distributed.

You may also wish to name a charity as an alternate beneficiary in case your primary or secondary beneficiary don’t survive you.

REVIEW HEALTH INSURANCE

If your employer provides you optional medical plans, compare them to your medical expenditures. Take time to select health insurance coverage that meets your individual or family needs.

UNDERSTAND TAX-DEFERRED PLANS

Some employers provide pensions, qualified profit-sharing plans and other forms of tax-deferred compensation for their employees. To supplement these plans (or in many cases, in lieu of them), employers offer salary-reduction plans such as a 401(k) or 403(b).

Beginning in 2006, if your plan permits, you may be able to elect deferrals to a 401(k) plan as Roth IRA contributions. These deferrals are not excluded from income but grow and can come out tax free.

If you have the opportunity to put money into a tax-deferred program, do so – especially if your employer matches your contribution! This is one of the best savings tools for retirement. It takes before-tax dollars from your salary and puts them into a tax-deferred compounding plan working for your future.

Tax-free benefits are becoming rare, as Congress keeps chipping away at benefits employees can receive without having to report them as income. Following are some of the remaining tax-free benefits available to you.

CHECKLIST OF TAX-FAVORED EMPLOYMENT BENEFITS

1. Educational assistance benefits: Up to $5,250 of tax-free educational assistance, includes payments for tuition, fees and similar expenses, books, supplies and equipment. For courses beginning on or after Jan. 1, 2002, the payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses.
2. Health and dental insurance: Premiums for group medical and dental plans are excludable from an employee’s salary.
3. Retirement plans: The employer’s contributions to qualified retirement plans are deferred from an employee’s taxable income until paid out to the employee.
4. Life insurance: The premium for the first $50,000 of group term life insurance is tax-free. Premiums for additional amounts of group life insurance have favorable tax treatments.
5. Disability coverage: The cost of employer-provided disability insurance is not included as taxable income for the employee. However, should the employee become disabled, the disability income proceeds are taxable.
6. Discounts on company goods: Employee purchases are tax-free as long as the goods are not sold below the company’s cost.
7. No-added-cost benefit: The value of services provided by a company at no significant cost to the company is not taxable to employees. For example, a vacant hotel room provided to hotel employees, or a reduced-fare flight for an airline employee who takes an empty seat.
8. Work-related fringes: These are tax-free reimbursements of expenses that would otherwise be deductible employee business expenses. For example, parking fees on or near company premises.
9. Dependent care assistance: Tax-free benefits are available for up to $5,000 of employer-paid child care or disabled dependent care services. Married couples who file separate tax returns can claim up to $2,500 each. Be sure the payments are made under a written plan and do not exceed the employee’s earned income.

For a copy of the Your financial PARTNER Employment Benefits Summary in Excel format click here

This is the fifth in a series outlining the Your financial PARTNER Personal Financial Management System. Next week we’ll address financial planning for your future so you’ll have the financial resources to meet and maintain your life’s goals.

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP^®, AEP^®.

The beginning of the year is always an excellent time to review and update your existing financial plans or start the process if you haven’t done so yet.

The process of financial planning doesn’t have to be intimidating or a difficult task. In simple terms, a financial plan is whatever strategy you set up for yourself and your family to meet your financial goals, needs, and obligations.
The most successful financial plans are personal in nature. They’re based on your own goals, values and lifestyle choices; they even reflect your personality.

Are you aggressive by nature, or are you a risk avoider? Would you rather own stocks and bonds, than leveraged real estate or fine art? Do you like to rely on professional advisers or talk with a lot of people before making a decision, or do you prefer to do your own investigation and come to your own conclusions?

It’s important that you understand the steps you’ll need to take in putting together a winning strategy to reach and maintain your financial objectives, regardless of your goals or personality.

The subject matter of financial planning is very broad, and its areas of expertise overlap. Accountants, attorneys, bankers, financial planners, insurance agents, investment advisers, realtors, stock brokers, trust officers and others can act as financial advisers and planners. Each of them emphasize a different aspect of your financial life. This is another reason financial plans can take many different forms.

Once you’ve defined your personal and financial goals, there are six major areas of personal finance that should be addressed in your planning:

1. Financial Independence & Retirement
2. Major Expenditures
3. Investments
4. Taxes
5. Insurance
6. Estate Planning

WHY DEVELOP A FINANCIAL PLAN?

The economics of living today’s are more complicated than in previous generations. The uncertainties of the job market, the lack of company sponsored retirement plans, the rising housing costs as well as college education, questions about the future of Social Security and other government programs, and the need to support yourself over a longer life span are real concerns.

Developing a comprehensive financial plan will address your financial situation now while giving you a real sense of security for the future. It will also help you:

Determine what has to be done and achieved to realistically meet your financial goals.

Save time and money when working with financial advisers.

Recognize bad advice and avoid financial pitfalls.

You don’t need to become a financial expert to create and carry out a solid financial plan. You do need to develop the assertiveness to ask questions and the willingness to listen until you understand the answers. And you must make the commitment to take appropriate timely actions.

DON’T DELAY YOUR PLANNING

The need for financial planning is obvious, so why do so few people do it? Here are a few reasons:

• Unorganized finances
• Lack of financial knowledge
• Too much information and no system to process it
• Not enough time
• Procrastination
• Lack of goals as a motivating force

SIX EASY STEPS TO YOUR FINANCIAL PLANING

Comprehensive personal financial planning can seem complex and confusing, and if you don’t know how to sort it all out, you may not even try. Armed with a systematic approach for addressing your planning, you’ll be in the best position to progress toward meeting your goals.

First, you need to do some serious (and playful) thinking about your goals, both personal and financial.

Next, to simplify and clarify the process, use the following six-step system for analyzing and planning each area of your financial life. This approach will guide you in a logical progression toward establishing, understanding and meeting your goals:

Step 1. Define Your Goals: State your financial goals in writing as concisely and specifically as you can.

Step 2. Gather & Organize Your Data: Make sure your financial information is organized so that your current financial position is clear. If you’ve been working through the previous features in this series, you’ve already done this (refer to your Net Worth Statement and Cash Flow Planner). If not, do so as you address each of the six areas of personal finance.

Step 3. Analyze Your Situation: Look at your current financial position. Are you meeting your goals, or are you falling short?

Step 4. Develop Your Strategies: Identify plans that will help you achieve your goals in the most efficient manner.

Step 5. Implement Your Plan: This is your action step. Take definitive measures to achieve and maintain your goals.

Step 6. Track & Monitor Your Progress: Check your progress on a monthly, quarterly, semi-annual or annual basis, depending on which of the areas of your personal finances you are addressing.

Using this six-step approach to financial planning gives you a systematic process to effectively address your personal finances.

CHECKLIST FOR AVOIDING PROCRASTINATION

Procrastination is the most common downfall of financial planning. Sometimes it’s wise to wait until you have all the information you need or until the timing is right before taking action. But procrastination can cause serious financial problems, including missed opportunities, increased stress, and a cynical attitude about accomplishing anything.

Here are some basic reasons for procrastination:

1. Fear of Failure: “I know I won’t do it right, so why start at all?”
2. Perfectionism: “What if I make a mistake?”
3. The Unknown: “I’m not sure what’s involved, so where do I start?”

You can break the procrastination habit. Here are some suggestions for getting things done instead of putting them off:

1. Break big tasks into manageable parts
2. Set priorities and do what needs to be done first
3. Spend 20 minutes every day on your top-priority task
4. Plan rewards for yourself as you complete each task

This is the seventh feature in a series outlining the Your financial PARTNER Personal Financial Management System. Next we’ll address setting your personal and financial goals.

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP^®, AEP^®.

Comprehensive financial planning considers short term, immediate, intermediate and long-term time frames. If you’ve been following our current series of features, over the past couple of issues, you’ve learned to inventory what you currently own and owe, take stock of your cash flow and manage it in order to live comfortably in the present. Now is a good time to take a quick long term view forward to see ‘what’s really important to you’ over the next three, five, 10, 20 and 30 years and more.

What personal, educational, and / or business activities are you interested in participating in? How do you want to spend your personal time? Business time? Family time?

What kind of clothes will you wear? Who do you want to spend your time with? What kind of lifestyle do you want to live? What do you want to eat and drink? What kind of car will you drive? Where will you live? Where do you want to travel to and what do you want to see and experience? Who do you want to meet? What do you want to accomplish? What would you like to do for your community? What would you like to contribute to our world? Or receive from it?

Setting goals is a worthy and useful task. Goals help you hone your expectations and give you targets to work toward. Without short-term, intermediate, and long-range goals you might just wander through life and discover one day — only too late — that you didn’t get really get a chance to accomplish what you wanted to.

Goal-setting doesn’t have to be difficult and can actually be a lot of fun. All you need is some private time to let your inner thoughts run free. Reflect on the values and things that are important to you. Decide which targets motivate and inspire you, then aim for them.

Your lifestyle goals are composed of personal and financial objectives. Personal goals include your ideas about family life, self-improvement, level of sports abilities, community activities, health and exercise-physical fitness, hobbies and special interests, recreation and travel.

Do you yearn to cook in an upscale custom kitchen? Do you like to drink designer coffee and premium wines? Own a vacation home in a warm and sunny luxury golf course resort? Do you like to wear early trend designer clothes? Drive collectible sports cars? Would you be sorry if you never took that dream trip? Do you need a larger home?

Your financial goals may include funding your children’s college education, or deciding if you want to become financially independent versus financially getting by, or generate family wealth so your kids will have the time to make this a better world.

What will you need to make and save financially to accomplish your goals. Your needs and desires provide the fuel for sound financial planning.

You may not generally think of the financial aspects of your life as being driven by your goals, but they are. Like many of us, you may find yourself reacting to financial situations more often than planning for them. This is precisely why formulating your financial goals NOW can make a world of difference for you. By setting goals, you can become more proactive in your life than reactive.

WHAT REALLY MATTERS FOR YOU?

Putting put your goals in writing is important. If you don’t establish and solidify your own goals, other forces will: peer pressure, intense advertising and merchandising, or just plain bad habits.

Begin looking now at your individual lifestyle and financial goals, as well as those of your family members and loved ones. Follow the accompanying checklist for developing your own “goal planner.” Make copies, fill one out yourself and give one to each family member, asking them to fill it out. Then schedule a family meeting to discuss and develop a set of goals for the family as a whole.

Take time to consider alternatives. You may redefine your goals once you understand your family’s, and as you learn more about your financial position and the financial planning process.

If you or your partner or your children are not able to complete the goal planners the first time you try, don’t worry about it. You can also consider this to be a good way to introduce your children to personal finance.

It is a good idea to review your family and personal goals at least annually, such as in January or February. That way you can see what has been accomplished, and determine whether any goals need adjusting, dropping or adding. Remember, your financial planning is an ongoing lifelong process!!!

IT’S YOUR DREAM

After you’ve spent some time thinking and jotting down your goals, you may feel better about where you are in your life and where you want to go. Even if your goals are not yet as clearly defined as you would like, you have at least escaped the procrastination pitfall — the most common downfall in financial planning. And, you have probably started to identify a few items you would like to accomplish.

Once you have some initial goals in place, you will be prepared to approach your financial planning in a simple, systematic manner using the Your financial PARTNER six steps.

1. Review Your Goals
2. Gather Your Data
3. Analyze Your Situation
4. Develop Your Strategies
5. Implement Your Plan
6. Track & Monitor Your Progress

As you work through the different subject areas of comprehensive financial planning (retirement/financial independence, major expenditures, investments, taxes, insurance and estate planning), continue to ask yourself what’s important to you. If you keep your goals in focus, you will greatly improve your chance of successfully reaching and maintaining them.

CHECKLIST — CREATING A GOAL PLANNER Start with a pencil and paper or a computer spreadsheet. On the first sheet, list the following personal goal categories (feel free to add other categories if you like), leaving space for input: 1. Family 2. Self-Improvement 3. Living Situation 4. Community Activities and Involvement 5. Health and Exercise 6. Hobbies 7. Special Interests 8. Private Time 9. Recreation/Travel 10. Other On a second sheet, list the following financial goal categories: 1. Paperwork 2. Assets and Liabilities 3. Cash Flow 4. Employment 5. Financial Independence/Retirement 6. Major Expenditures — education, car, home,    trips, charitable giving 7. Investments 8. Taxes 9. Insurance 10. Estate Plans 11. Other Make copies and keep one for yourself; give one to each family member to fill out. 008-YFP – FP Lifestyle Goals.020610

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP^®, AEP®.

For many people they would like to reach their financial independence long before their retirement age. However, this becomes a real challenge with today’s longer life spans as you may have to support yourself for 30 plus years beyond your retirement.

The sobering truth highlights that the reality of a comfortable, satisfying retirement doesn’t happen accidentally. It must be purposely planned and considered as part of our overall spending decisions.

It is regrettably, but most people do not make this a high priority because they don’t understand what needs to be done or how to do it. We are more focused on day-to-day living and don’t take deliberate action to prepare for our long term financial future.

It’s never too early (or too late) to begin your planning for financial independence and retirement. Here are some numbers that may help you get started.

The following table shows how long it would take you to accumulate $1 million by investing different amounts of money each week or month, assuming you earned 8 percent after taxes on your investments. And 8 percent is not a given; you’ll have to work very hard for it.

Looking at it another way, you’ll need almost $600,000 of capital for every $5,000 you spend each month if you get an 8 percent after-tax return — before inflation — at 65, living to be 85.

The following table shows these figures over different lengths of time.

Your retirement should be something to look forward to and enjoy. But according to the Social Security Administration, the majority of those 65 or older are “entirely dependent” on their Social Security payments. The average annual benefit paid by Social Security for 2010 is about $14,000 per retired worker; for a retired worker & spouse it’s $22,700.

Invest some time now planning for your financial independence and retirement; it will make a big difference for your financial future. To help you get started on your financial independence planning , or updated if you’ve already started , go through the Your financial PARTNER Six Step process listed in accompanying Checklist feature box.

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP^®, AEP®. 

Are you considering remodeling with all the new fun culinary appliances and accessories for your kitchen or purchasing a new luxury vehicle? Would you like a second home in the mountains, or on the coast overlooking a championship golf course or a Chateau in France? Are you thinking about paying for your children’s or grandchildren’s college education? How about that month-long culinary tour throughout Italy? These all can be defined as major expenditures.

There isn’t any hard-and-fast rules as to what constitutes a major expenditure. Each person / family will have its own definition. For some “major” means hundreds of dollars, for others it can be tens of thousands of dollars.

When considering major expenditures proceed with care, especially in these challenging times. Peer pressure and media influence can have a big effect on how you approach your major expenditures. Just spend an evening in front of the computer, television or reading a magazine without developing a craving for a new high-performance car or a must-have wide-screen TV or a golf or tennis trip to the next Open venue.

It helps to be clear about what you really want and what it will really cost — both in today’s dollars and the dollars it takes away from funding your other long-term goals when you are planning for your major expenditures.

For example, if you purchased a new car every three years and overpaid $3,000 each time, from age 25 through age 70, you would have wasted more than $45,000. However, if you had invested that money every three years at 8 percent over those 45 years, it could grow to almost $500,000. That could make the difference between a comfortable retirement and a very lean one.

PRIORITIZE MAJOR EXPENDITURES

To put you in a better position to identify and prioritize your major expenditures, take out a pencil and paper or computer spreadsheet and begin creating a Major Expenditures Prioritizer.

Major Expenditures Prioritizer

Label the far left column “Major Expenditures.” Then add the following column headings to the right: “Need or Desire,” “Priority Level,” “Target Date to Acquire,” “Estimated Total Costs,” “Current Funding” and “Future Monthly Commitments.”

Next, list your planned major expenditures in the first column. Then do the following for each identified expenditure:

Determine if the expenditure is a “Need” or “Desire.”

Assign a priority level for each expenditure by describing your commitment to it as:

• A = Necessary
• B = Important
• C = Optional
• D = Not Appropriate

Enter the target date for achieving each particular objective.

Estimate the total cost you anticipate for each expenditure. If this is a long-term acquisition, make sure you take inflation into account. If you are not sure, begin researching it.

List the funds you have allocated for this particular expenditure. Refer back to your net worth statement (listing your assets and liabilities) and cash-flow planner to make sure this amount is realistic.

Enter the monthly contribution you are willing and able to make toward this expenditure. Be realistic; make sure that you have budgeted for this item and that you’re not making an impulsive decision.

Taking a little time for planning your major expenditures can make a big difference in your financial future.

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP^®, AEP®.