Financial Planning

by Carmen C. Garcia, CPA

Twenty years ago financial planning was only for the very rich. Those lucky enough to have all the money needed tax accountants and financial planners to help them plan and avoid inheritance taxes and transfer it to their heirs. In today's world, financial planning is a buzzword and everybody that has access to the internet is a potential financial planner.

There are three major reasons why you should plan financially:

• To accumulate money more efficiently
• To produce a higher income or rate of return
• To transfer your money to your loved ones

In America we have the opportunity to work and earn money-we just haven't learned how to keep it! The Social Security Administration conducted surveys on retirees and found the following results: out of 100 people that reach age 65

That means those 95 men or 87 women out of 100 were dead or dead broke.

The Social Security Administration also said that 2 ¼ million senior citizens forfeit their social security benefits because they have to work. At change in the law this year, will make it possible to for retirees to continue working and keep all of their social security benefits. Just hold on until age 65. The threshold age will begin increasing gradually until the 100% benefits-retained age hits 67. Also, over 1/3 of all senior citizens live below the poverty level as established by the federal government.

A Mayo Clinic Study also found that 90% of deaths occurring after age 65 could be traced to financial worries. A study of families who lost their breadwinners shows that survivors' incomes dropped to 44% of what they had been. Actually, 6 out of 10 family incomes immediately fell well below the amount needed to maintain their accepted standard of living.

If financial planning is so important why don't people plan?! Here are some obstacles to financial success:

• The Rising Cost of Living. The average inflation rate has been 5.6 % for 26 years and the dollar has decreased in purchasing power to 23 cents from 1970 to 1995. Although salaries have risen, costs have outpaced incomes and workers now need two salaries per household to keep up.



• Taxes and Inflation. If you are in the 28% tax bracket at 5.6% inflation rate, you have to be making an investment return of over 7% just to break even. That means that if you invest in savings accounts, money market accounts, certificates of deposit, US Treasury bills and notes and most mortgage securities, taxes and inflation on those securities will yield less purchasing power and you are walking backwards.



• Too Much Risk. Or not knowing the basics about investing. You can lower you risk by buying mutual funds which offer professional management and diversification, or participate in a managed allocation program, where you take advantage of the fact that sectors of the market don't all go up and down at the same time.



• Failure to Plan. Not doing anything until it's too late!

If you don't have a financial plan yet, being TODAY, it's never too late. Here are some steps to guide you in beginning your financial plan:

Step One. Find out where you are. Prepare the following:

1. Personal Balance Sheet
2. Personal Budget
3. Family needs analysis
4. Retirement needs analysis
5. Education needs analysis
6. Investment analysis
7. Insurance analysis

Step Two: Decide where you want to be in 1 year, 5 years 10 years, at age 65 or at retirement.

1. Set your short term and long terms goals.
2. Prioritize your goals. Is education more or less important that vacation?
3. Analyze your investment attitude. If you're 65 and all your money is in equities, is that realistic?

Step Three: Put your plan in writing. There are many easy software programs available, including Quicken and Microsoft Money, to help you.

1. Establish your implementation plan in order of priorities.
2. Talk to professionals about appropriate products and programs
3. Give taxes proper consideration.

Step Four: Monitor your plan regularly.

1. Consider changes in income and employment status
2. Family matters could effect your plan
3. Volatile market conditions could change your priorities.
4. If you work with a planner, see your professional at least once a year.

Carmen C. Garcia, CPA, is President and Owner of C.C. Garcia & Co., P.C. a San Antonio CPA firm serving individuals, small businesses and non-profit agencies. Email carmen@ccgarcia.com or visit her website at www.ccgarcia.com.