Top 10 Financial Planning Tools

Physician's Money Digest, Spring 2013, Volume 15, Issue 1

An effective financial advisor is committed to empowering clients by spending time educating them and checking in regularly.

Below are 10 issues that all women, whether married, single or in transition (recently divorced or widowed), may want to discuss with an advisor who can communicate with them in a way that is informative and not condescending.

1. Understand your budget

Know the difference between what you earn and what you spend and the impact your credit card balances have on your disposable income. If you are overspending, you can be referred to a credit counseling service. If you are saving, it’s good to see that amount grow. A typical financial planner wants to start with a financial plan but unless you understand your budget, the plan will be meaningless.

Especially for widows, do not let friends or family pressure you for money that you cannot afford to give. A financial planner can help incorporate subsequent periodic gifts or charitable contributions into a budget to be sure you’re meeting your core expenses first.

2. Understand your debt

Everyone views debt differently. Some hate it and want to enter retirement with a paid-off mortgage. Others want to use debt as a leverage tool. There is a risk and trade-off to both good debt (mortgage) and bad debt (credit cards). Work with your advisor to be sure you have only good debt and not so much that it keeps you up at night.

3. Checking beneficiary designations is critical

Changes due to divorce, death and remarriage can quickly make existing beneficiary designations on pension accounts, 401(k) or 403(b) accounts, or insurance policies wrong. Look at your policies and pension documents carefully and make sure that your current beneficiaries of choice are listed.

4. Consider taking some investment risk

Studies show women can make better long-term investors than men, who tend to trade more frequently due to overconfidence. This can lead to bad investment decisions that cost money due to trading commissions and extra tax owed. However, the concern with women is a reluctance to take adequate risk in the portfolio to have it grow at a rate faster than inflation over time.

Work with an advisor to help you determine the appropriate mix of equity and fixed income in your portfolio. Asset allocation is a conversation that is unique to each client’s set of circumstances.

5. Estate planning

Estate planning is essential to ensure that your legacy wishes are followed. Often an attorney will leave it up to you to re-title valuable real estate or assets into the trust. If taxable accounts and real estate are not in the trust and you die, they may go through probate. If you do not know if your trust has been “funded” by a change of title of valuable assets, ask a financial advisor to review your estate planning documents with you.

Additionally, be sure you are clear on how you want your estate divided after your death. Any dysfunction that exists among your heirs will be compounded on your death if your wishes are not clearly stated.

6. Get help understanding your tax returns

While it is important not to let tax considerations drive your financial planning, it is equally important to know if changes can be made to your finances that will lower your tax liability. This is particularly important if someone else has always handled your tax returns and you are suddenly responsible for your own finances.

Copies of your previous tax returns can be greatly helpful to your financial advisor in understanding your financial situation.

7. Continue to fund your 401(k)

There is virtually no reason to not participate in your employer’s 401(k) plan with a deferral up to at least the match your employer offers. If you must defer 5 percent to get the employer’s 5 percent, do it. Unless cash flow is especially tight, it is not smart to leave this free money on the table.

8. Umbrella liability coverage

Despite often being overlooked, umbrella liability coverage can be essential. Proper liability insurance can protect you from devastating lawsuits. Additionally, make sure you have adequate homeowner’s or renter’s insurance.

9. Some life insurance serves specific needs

For young families it is an “instant” estate should one of the two parents die and there are young children who will continue to need care and support as they grow.

10. Consider disability insurance coverage

If you are self-supporting and you and your family depend on your income, then disability insurance coverage is particularly important. Your chances of becoming disabled are greater than the likelihood of your death.

The right advisor

A good financial advisor is sensitive to and skilled at educating clients. When choosing an advisor, interview several to see if their style works for you. Make certain that you feel respected, and that all of your questions are answered clearly and comprehensively. Doing so will insure that you find the best match for your goals, needs, background and personality.

Janet Hoffmann, CFA, CFP, Integral Financial Solutions, San Francisco, Calif., can be reached at janet@ifsplanners.com or (415) 291-9999.