Financial Planning should not be “UGH”
Most people would rather not deal with their finances. Putting off or planning to deal with finances at a later date seems to be preferred by most people. Procrastinating costs money and unfortunately financial planning takes place primarily when an unexpected event takes place or an emergency surfaces.
Although financial planning ought to be a continuous process, the fourth quarter is the time of the year that many individuals assess their financial situation (which includes budgeting and cash flow planning, as well as income tax, retirement, investment, estate, insurance planning and risk management assessment). Further, financial record keeping, planning for education costs, charitable deduction planning, planning for divorce and elder planning are activities that ought to be revised as a normal part of the financial planning process.
CPAs are a natural starting point for financial planning as they perform their regulatory and compliance work via the preparation of an individual’s federal income tax return. The information in a tax return and balance sheet provide a roadmap to a Taxpayer’s personal financial situation and should be reviewed in tandem.
In order to properly analyze an individual’s tax return, CPA’s can review the different sections of a tax return as a means to initiate a financial planning “mindset” for the client. Some key considerations are:
- What is the filing status (single, married, divorced)?
- What are the sources of income (wages, self-employment, partnerships)?
- What are the sources of interest income? (bonds, CDs foreign bank accounts)?
- Are there capital gains or losses?
- What are the itemized deductions?
- What are your financial plans for the next 5 years?
- Is managing cash flow your main concern?
Many CPA’s focus on reporting, compliance and taxes. They are starting points for financial planning because they can help understand financial opportunities and identify areas of improvement. CPAs will assist with:
- Preparation of taxes and financial statements
- Understanding the breakdown of expenses
- Explanation of tax laws and their effect
- Recommending different Business structures
- Explaining business growth and succession strategies in relation to taxes
- Representation if audited
CPA’s can provide assistance in a holistic manner by helping with identifying financial goals, evaluating existing resources, and implementing the financial strategies that will lead clients towards their goals. Don’t be a victim of your own making. Financial planning is a normal and necessary process. Consult your tax specialist as the first step in getting organized towards reaching your financial goals and peace of mind.