Worcester Jewish Chronicle, September 15, 2005

Nothing Succeeds Like Success- Part III

William E. Philbrick, CPA, MST, CVA, CFF

This is the concluding article and we will look at other key areas on our “Financial Circle of Life” and how to deal with the surprises life brings.

A primary key area on our “Financial Circle of Life” is the workplace…our jobs.  Of course, you want to earn a good salary.  We all do.  It goes without saying…but that’s the beginning, not the end of what you should be looking for financially from your job.  Let’s take a look at some specifics.

One third of Americans fail to take advantage of a 401-k or other investment options offered by their company.  They may spend weeks or months deliberating on an effective strategy to get a 5% or 10% raise, and then turn their backs on the chance to have hundreds of thousands of dollars for their future security.

 If you are part of this group, please start participating the minute you can.

A few other ways to use your job to improve your long-term financial picture:

If automatic deposit is available, use it to keep you honest about your savings by splitting your deposit between checking and savings.  It’s also amazingly convenient. 

• Find out about retirement plans…how they work…when you’re eligible…when you’re vested
• Check out what your company offers in terms of disability and life insurance. They may make better rates available than if you found a carrier on your own.
• Investigate your company’s health plan carefully.  Don’t take too much or too little insurance.  Don’t go for options that can be costly but that you are unlikely to use.  Consider deductibles, prescription plans, and other add-ons.

If you are faced with the awful reality of being fired or laid off, make sure you understand 100% of what you are entitled to get.  Unemployment insurance.  Severance Pay. COBRA health options.  Outplacement Services.  There is no better time to make a pest of yourself…you have absolutely nothing to lose.  Don’t stop asking questions until you are totally satisfied that you have all the answers you need…and all the benefits you are entitled to.

Unfortunately, bad things do happen to good people, and job loss is not the only crisis that can rain down financial havoc.  That’s why you need to follow that old piece of advice:  “Hope for the best. Expect the worst.”

In the event of a divorce…and remember over 50% of marriages today do end that way…ask yourself:  Do I make enough to support myself?  Which assets do I want?  Can I afford to keep the family house?…or…are we better off selling and dividing up the proceeds?  If there are children, be sure you spell out your wishes regarding custody, visitation and child support.  Whether or not you hire counsel, you need to be totally clear on your rights.  Most importantly, you need to park your anger at the door when it comes to making financial decisions.

Disasters can also derail us emotionally and financially.  Fires.  Floods. Earthquakes. A prolonged health issue.  The death of a spouse.  Whatever the specific disaster, there are common financial strategies that can help you weather the crisis. 

• Get advice from professionals such as insurance agents, financial advisers, CPAs and/or lawyers.
• Locate important documents and financial records.  Always make sure you keep them in a safe, fireproof place either at home or at a financial institution.
• Evaluate short-term income and expenses to determine the immediate magnitude of the problem. You may actually discover you’re better off than you thought if you separate what must be handled right away from what can wait until the dust settles.
• Avoid making hasty decisions.  If you are so inclined, use a trusted family member or friend as a sounding board.

Another life stage, becoming more and more common, is what’s come to be called the “sandwich generation.”   That’s the term coined for those caught in the middle between raising and educating their kids and tending to the needs of aging parents.  The load can be oppressive.

It’s important to learn about your parents’ ailments so you can make a realistic budgeting assessment.  Of course, it is always easier if you can have an open, honest dialogue with your parents about their financial situation and their wishes in advance of their illness.  As you work at prioritizing your emotional and financial resources and theirs, an elder care specialist can provide enormous advice and support for the entire family.

And what about your own “golden years?”  How will they shake out?  Are you preparing for them adequately?  Most people seriously underestimate the cost of retirement.  Remember, it’s getting more and more likely you’ll live to be a 100…and less and less likely you’ll be able to afford it.  You’ll need about 70% of your current income to finance your retirement.  Social Security generally covers less than 30%.

That’s why it is so important to start early and take full advantage of every retirement option your employer offers.  Also, invest the maximum allowed in an IRA…and do it every year.

Let me give you a little dollars-and-cents proof of what a difference starting early can make.  $2000 a year invested at age 25 in a tax-deferred account, earning a 10% average annual return will become $885,000 by age 65.  Start at 35, and the nest egg would total only $329,000.  The $20,000 NOT invested during those 10 years cost you $556,000.

Finally, and this is truly the final thing you can do for your loved ones…be sure you have a will—one that clearly spells out your wishes.  A will is one of the most important documents you will ever prepare.  It guarantees that your assets are handled according to your specific wishes.  It allows you to formulate a strategy that preserves—from taxes—the greatest amount for your heirs. And, it spells out who will be guardian of your minor children. Most importantly, don’t try to draft a will on your own.  Use the services of a lawyer and financial planner. It’s too important to get wrong. 

So there you have it—a blueprint for 360 Degrees of Financial Success.  Using these simple ideas as your basis, you can be confident that wherever you are—or will be—in the Financial Circle of Life, you will be able to enjoy the good times and work your way through the tough ones.

Remember the Disney movie favorite, “The Lion King?”  It has some neat music centered on the circle of life…especially the song “Hakuna Matata,” which translated from Swahili means “no worries.”

With care and planning, it can be your financial motto. No worries.

No worries because you save and curb spending…because you look ahead…because you are able to Think Small and Do It Regularly!

So when you ask yourself that all-important question:  “How prepared am I to handle my financial future whatever that future holds?”  I hope you will soon be able to honestly answer:  “No worries.”

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William E. Philbrick, CPA, MST, CVA, CFF is a Senior Vice President and Director of Taxes and Forensic Services with Greenberg Rosenblatt Kull &Bitsoli, P.C. of Worcester, Mass. He can be reached at wphilbrick@GRK&B.com.