Harris: Five Key Elements of a Successful Financial Plan
By: Charlestien Harris
It is a new year, which means now is the time to put some serious thought into how to get your finances to flow much more smoothly in 2023.
Planning and setting goals are the keys to success when it comes to your finances. The main elements of a financial plan should include a retirement strategy, a risk management plan, a long-term investment plan, a tax-reduction strategy, and an estate plan. Let’s take a closer look at each of these categories to see how you can shore up your financial future this year.
- Have a Retirement Plan
Retirement isn’t just one step where you simply decide to stop working. After the pre-retirement stage (goodbye), expect to move through a honeymoon phase (no more work), disenchantment (my time is not my own), the job of building a new identity (who am I, really), and finally, settling into a routine (finally doing me).
If you haven’t been tracking your monthly living expenses already, this is the time to calculate how much money you will need and how much income you can expect to have during retirement. Do the math, figure out whether you’re on track, and decide what to do next. That could include everything from identifying your changing needs, determining retirement income sources, or deciding to work a few more years. - Have a Risk Management Plan
In simple words, risk management is the process of identifying, assessing, and controlling financial, legal, strategic, and security risks to your financial future. Effective risk management means attempting to control (as much as possible) future outcomes by acting proactively rather than reactively. Every risk management plan is different because it is based on a unique set of factors dictated by a person’s lifestyle and financial situation. Insurance is just one way to handle unexpected events. Prevention is another option as well. This may mean getting prepared well in advance so when and if the event occurs, you will be ready. - Have a Long-Term Investment Plan
Long-term investing is a general term describing a strategy of buying and holding investments for a period of more than 10 years. Buy-and-hold investors believe that “time in the market” is better than “timing the market.” If you utilize this strategy, you will buy securities and hold them for long periods of time. The idea is that long-term returns can overcome short-term volatility.
You should seek the advice of a certified professional when it comes to investing. This is a very serious financial decision, and you will have decide how much risk you can afford. I would suggest using a professional as a guide because they can provide the critical facts necessary to keep you on the right track. - Have a Tax-Reduction Plan
Reducing your taxes boils down to three basic principles: reducing taxable income, increasing deductions, and taking advantage of available tax credits. Tax laws change frequently and have become more complicated, therefore it can make it hard for a taxpayer to stay on top of the latest tax strategies. Some common tax deductions can include health savings account contributions, traditional IRA contributions, charitable contributions, mortgage interest, and some medical expenses.
A tax credit gives you a dollar-for-dollar reduction in your tax bill. For example, if your federal tax bill is $10,000 and you are entitled to a $2,500 tax credit, that credit cuts your tax bill by $2,500 to $7,500. - Have an Estate Plan
Estate planning is the process of designating who will receive your assets in the event of your death or incapacitation. This is often done with guidance from an attorney. One goal is to ensure heirs and beneficiaries receive assets in a way that manages and minimizes estate taxes, gift taxes, and other tax impacts. You may think you don’t have enough to justify estate planning, but once you start looking around, you might be surprised by all the tangible and intangible assets you have.
Once you have a sense of what’s in your estate, think about how to protect the assets and your family after you’re gone. Some examples would be to ensure you have enough life insurance, name a guardian for your children, and document your wishes as well. Your will and other documents may spell out your wishes, they may not be all-inclusive. Be sure to name or assign beneficiaries; don’t leave any beneficiary sections blank. In that case, when an account goes through probate, it may be distributed based on the state’s rules for who gets the property. You should also name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you and the primary beneficiary designation is not updated.
Staying on top of your finances with a plan can save you time (and headaches) when unplanned events happen and you’re unprepared. But don’t forget to also review your plan periodically, and make changes when necessary. Life changes – so should your financial plan.
You can find additional information on this and other financial topics at www.banksouthern.com/blog, or you can call me at 662-624-5776, or email me at Charlestien.Harris@banksouthern.com.
Until next week – stay financially fit!
Charlestien Harris is a financial contributor to DeSoto County News. She is a financial expert with Southern Bancorp Community Partners whose articles are seen in a number of publications around the region. You’ll be seeing her columns weekly on the DeSoto County News website and our social media channels.
