These are applicable to your personal life AND your professional life
Protect Yourself with Legal Documents: It is extremely important that before you think about your future, you secure your present. Legal documents allow you to ensure your wishes are followed in the case of any type of misfortune. Make sure these documents are created and remain up-to-date. Personally: Wills, Trusts, Power of Attorney, Living Will, Healthcare Proxy, Beneficiary Designations Professionally: Operating Agreements, Buy/Sell Agreements, Succession Plan, etc.
Protect Yourself with Insurance: It is extremely important that before you think about your future, you secure your present. Insurance provides the economic relief for you, your family and your business in the case of any misfortune. Personally: Life Insurance, Long-Term Disability Insurance, Long Term Care, Auto, Home, Umbrella Professionally: Buy/Sell Insurance, Office Overhead, Commercial Liability, Workers Comp., etc.
Professional side note: Are you personally protected from your business? (eg. S Corp, LCC, Sole Prop)
Know Your Benefits: Are you taking advantage of the employee benefits offered to you? Do you know the specifics of your health insurance coverage? Are you providing benefits to your employees? Personally: Are you taking advantage of employer-provided benefits? Are your medical benefits sufficient? Do you know what you are covered for?
Professionally: Do you offer employee benefits? Goal – Reward, Retention, Recruitment
Understand Your Cash Flow: Are you saving every month or do you feel you are spending more than you are making every month? Understanding your cash flow is extremely important. Figuring our your cash flow on a monthly basis will allow you to make informed decisions on purchases and provide you the clarity to put a savings plan in place.
Personally: How much income (after taxes) do you make? How much do you spend each month? What are your fixed expenses? What are your variable expenses? GOAL: INCOME > EXPENSES Professionally: For your business this is known as your P&L (Profit & Loss). Are your revenues greater than your expenses each month? Is your business seasonal? Do you have large start-up costs? Is your 5- year P&L outlook positive? Can you make your payroll every month?
Create an Emergency Fund: Finance woes are usually in most people’s top 3 stressors, creating an emergency fund allows you to have peace of mind. We cannot predict the future but knowing you have funds set aside solely for emergencies will allow you to protect your monthly cash flow, savings, and future planning.
Personally: 6 months of fixed expenses put aside (eg: need a new roof, new boiler, medical bills, etc.) Professionally: Varies based on cyclicality of business as well as how established a business is (eg: need for additional employees, increases in rent/taxes, bad sales month, etc.)
Manage your Debt: Understanding your liabilities, monthly payments and interest rates will allow you to have an ‘attack plan’ to eliminate debt. Are your interest rates competitive? Can you meet minimum payments? What is your timeframe for paying off debt? Are you continuously incurring debt (see cash flow)?
Personally: Pay off credit cards first (highest interest rates), then student loans then mortgage Professionally: Do you have an SBA (Small Business Administration Loan)?
Plan for Retirement: Retirement planning should absolutely be a priority for everyone. We are living much longer meaning we are in retirement longer than prior generations. We cannot rely on Social Security if you are under 55 years of age. How will you pay for your retirement? IMPORTANT TAKEAWAY: Do NOT forgo saving for retirement in order to save for your child/ren’s college tuition! Your child/ren will have access to many funding options (loans, scholarship, grants, etc.). When you are retired, NOONE will provide you loans!
Personally: GOAL: Max out your employer plans (401(k), 403(b), etc.) If you do not have an employer plan then take advantage of IRA contributions or non-deductible savings plan. Professionally: If self-employed, take advantage of tax-advantaged retirement planning options (eg. 401(k), solo 401(k), profit sharing plans, cash balance plans, etc.)
Know Your Family’s Financial Situation: Are your parents, siblings, children, etc. planning for their future? Making sure your loved ones have a plan in place will allow you to know whether or not you will need to provide assistance. If your loved ones are hurting financially, unfortunately, too often it becomes your ‘financial burden.’
Be mindful of Taxes: What is the largest bill you will ever pay? Nope, its not your mortgage, its taxes! Make sure you understand your tax bracket – Are you invested in tax-advantaged vehicles? Are you taking advantage of retirement plans to lower your tax exposure? Are you utilizing your assets and income to pay your expenses in the most tax-advantaged way?
Personally: Life Insurance, Long-Term Disability Insurance, Long Term Care, Auto, Home, Umbrella Professionally: Are you structured correctly to allow for tax deductions? Sole Prop, S-Corp, LLC?
10. Make a Plan and Revisit, Monitor and Adjust: Planning for a successful financial future is not a one-time activity. To ensure you are headed down the best path, it will take time to identify and implement and then regular monitoring and adjusting is crucial to make sure you are staying on track. Personally: Best times to make a plan and/or revisit your plan: Life milestones (eg. marriage, home purchase, having children, starting a business, changing employers, becoming empty nesters, incurring a large expense/purchase, etc.)
Professionally: Business milestones: Partnership changes, new ventures, large expenditures, strategic changes, etc.