A widow recently shared with me that when she went to the bank to deposit the insurance money she received following her husband’s sudden death, she was approached by an ‘in house’ sales man who convinced her to put a large portion of the funds into an investment that wasn’t in her best interest. However she was so emotionally vulnerable that she just proceeded without thought. Undoing the damage cost her thousands of dollars.
It is often just after the most difficult moment in one’s life when she is suddenly forced to take over responsibility for her family’s finances. Whether it is due to the death of a spouse or parent or a divorce, women and sometimes men, who have not previously been responsible for financial management, may feel lost and alone in a world of decision making that they are ill-equipped to handle.
The first obstacle to overcome is fear. Money management can seem very daunting and overwhelming. You may not have much experience dealing with financial decisions alone and fear that you will make mistakes. However, you can overcome that fear with information. There are three essential parts to understanding your finances:
1- Part one is understanding your cash flow. It is the relationship between the money coming in each month from any/all sources and the money going out to pay for expenditures.
2- The second part is understanding your net worth. This is the sum of all your money, bank accounts, investments, property and other assets minus your debt (mortgages, loans, notes and credit card debt).
3- Future financial goals for yourself and for your heirs.
Cash flow examines your income versus your expenses. It is important to understand how much money you have coming in each month. There can be many different sources of income. Salary is one. You may have other sources as well. Alimony and child support, assistance from a family member, income from investments, business income. rental income, the possibilities are quite diverse.
Perhaps even more challenging than understanding your income is understanding: “where does it all go?” All of the monthly bills that you pay including; rent or mortgage payments, credit card payments, living expenses, taxes, insurance and anything else you spend money on are part of your outflows. If your outflows exceed your inflows then you will have to make up the difference either by using savings or by borrowing money, for example by using a credit card.
Paying bills can be a complex chore. Knowing which bills must be paid and when; setting up online bill payments and phone apps; and making decisions about which payments to make immediately and which to defer, require analysis and thought with consideration of tax issues and an understanding of interest and the time-value of money. Getting it right will have a huge impact on your financial comfort, ability to pay future bills and help determine what resources you will have for the future.
The next phase of understanding your financial position is calculating your net worth. To do this you must add up all of your savings, checking and retirement accounts, and the value of your assets (including insurance policies) and property. Then you must subtract any debt and loans. Obligations like a car lease are similar to a loan and must be counted against your assets. You may be wondering how this information is useful. Depending on what stage of life you are in this information is needed for a variety of purposes. Here are some examples:
• Applying for and receiving credit or a loan
• Applying for financial aid or collage scholarships for children
• Making certain that estate planning documents are created to
properly manage distributions and tax issues after your death.
• Making appropriate decisions about investments and risk tolerance.
Once you have an understanding of where you are (net worth) and what your needs are (cash flow) it is time to plan for your future goals.
Who will select your investments?
There are three basic options. The first is to handle your investments on your own; The second is to manage your investments with some help from professionals; and the final option is to hire a Personal Financial Advisor, like us, to oversee your complete financial picture and actively manage your investments. Deciding which route to take should be based on your knowledge, interest and available time.
If you decide to hire a professional, something to keep in mind is the difference between a professional who is a “Fiduciary” and one who is not. A Fiduciary has a special obligation under the law to serve their client’s best interests above their own. Stock brokers can give you advice and help you to manage your portfolio but they are not fiduciaries. Often times brokers are paid commissions or have directives from their company to promote certain investments. These may or may not be consistent with a client’s best interest. However Certified Financial Planners and Attorneys are fiduciaries and are thereby required to serve their client’s best interest.
At Personal Asset Strategies, Inc. we not only work with our clients to create a comprehensive financial plan, we also do the administrative tasks required to implement the plan. We provide synchronized financial management, in a manner similar to having a “family office”, which was once reserved for the ultra rich. We take a personal approach getting to know our client’s families and personal priorities that impact on their financial decisions during their lifetime and in their estate plan. We are fee-only planners which means that we are paid a percentage based on the total assets that we manage. Because our fee is tied to the success of the client’s portfolios our interest is completely aligned with our client’s. We never charge commissions or sell any products.
Regardless of how you decide to proceed it can be very valuable to meet with me to discuss your choices and create a plan to go forward. I am happy to provide a complimentary consultation and portfolio review session either in person or via Zoom. Please contact my office to schedule. (516) 248-8811 or Email me [email protected]