William’s company was doing fine financially, but this didn’t carry over to his personal finances. Although he took home enough money to cover taxes and everyday expenses, most of his profits went back into the company for expansion and retained earnings. He had never planned for his retirement, rarely took a vacation unless it involved business, and worked upwards of eighty hours a week, leaving little time for R and R.
After William thought he had had a heart attack, he realized that although his business was important to him, there were other things he wanted to do, which included having some fun! Knowing that this was important to William, his advisor helped him flesh out the life he was envisioning, and they started to look at what would be required to make this life a reality.
Question Period
Part of the planning process involves asking questions – “What is it that you want to achieve?” “How do you envision your future?” “What is important to you?” “What do you love to do?”
William did some soul-searching and discussed his ideas with his advisor. He had decided that he wanted to travel for fun, start dating, and now that he knew his heart was strong, we wanted to do more physical activities, such as skiing, tennis and swimming. He also wanted to buy a home and put money aside for his retirement. He also wanted to put aside some money for the family he hoped to start one day.
All of this takes time and money. Financial Planning looks at how much, based on William’s immediate financial situation, projected situation and his goals, should he retain in liquid assets versus long-term investments. What type of investments suited his needs, wants and plans? Also, what is his risk tolerance level? Is he a conservative investor who prefers a low risk portfolio, even though it may take longer to reach those goals? What are William’s financial obligations?
Together, William and his advisor examined his income and assets, his current and projected expenses, and was reviewed, along with related costs such as taxes.
Moving Forward
Once they had a better understanding of William’s various goals, timelines, and risk tolerance, the planning software William’s advisor used helped them to create a strategy that would allow William to take more money out of the company for his personal use, while keeping his taxes to a minimum, and continuing to look after the company’s interests.
They decided on investments that were appropriate for William’s needs. Investments were segregated into shorter and longer term holdings so that William would have access to funds at different times. Some funds were placed into other aspects of planning, such as insurance. We will look at these in future entries.
They also looked at Tax Planning. A wise tax plan will help William to improve his financial situation by ensuring that he pays his fair share, but does not overpay in taxes. He even found that some investments offered better tax benefits than others, although they made sure that his tax plan complements his financial plan, rather than making financial decisions solely on this factor.
By Gino Scialdone, Black Spruce Financial
gino@blacksprucefinancial.com
Next blogpost: Happy Tax Season!