The Seven Deadly Sins Of Financial Planning
Author: Robert T. Boyer, Ph.D.
1. Failure to plan. Trite and pedantic, but still number one.
"A failure to plan is a plan to fail." [Unknown] While it is
frequently reported that people who have their goals written
down fare better than those who do not, having seriously
considered goals and mentally developed plans to achieve them is
a great start. Writing them down so they are available for daily
review is a bonus that can accelerate how fast you achieve your
goals as well as to increase their significance. Beyond the
basic financials, you must also consider the unexpected – e.g.,
disability, long-term-care, death, and divorce. The critical
failure is in not planning at all.
2. Failure to recognize that all finances are interrelated.
Finances thread through every part of your life, from income,
expenses, and taxes, to credit cards, mortgages, and home equity
lines, to life insurance, investments, and college savings, and
to business, financial, and estate planning, and to inflation
and the time-value of money.
• A $5 treat today costs you $30+ on your mortgage.
• A $20,000 home equity line could cut your mortgage by ½ to
1/3.
• A $2m life insurance policy could cost your heirs $2.9m in
estate taxes plus another $1+m in transaction costs to liquidate
assets to pay the taxes – total approx $3.9m
• OR a $2m life insurance policy could save your heirs $2m in
estate taxes plus another $0.67+m in transaction costs avoided
by not having to liquidate assets.
• A simple rental property can result in early retirement and
financial independence.
They often say, "Your home is your greatest investment." Are
you treating it like one or do you have equity trapped in your
home like money hidden under the mattress?
3. Failure to work with a collaborative, integrated financial
planning team. A financial planner is not equipped to handle all
your needs, nor is any other single individual advisor (which
means that doing it yourself isn't a wise move and neither is
taking advice from co-workers who are no better off than you).
Because finances thread through everything, you literally need
expert advice from multiple specialties. Acting independently,
your advisors will give you correct but often conflicting
recommendations. You need a team of specialists to create the
synergy to achieve the right solution for your unique situation.
You are neither too young nor too old to start. Neither can you
have too little nor too much money to benefit from the insight
and guidance of a team of professionals.
4. Failure to consider or fully utilize the myriad tax
advantages. The tax codes provide a variety of incentives to
encourage desired public policies – from home ownership to
investment and economic stimulus to self-reliant retirement.
Paying taxes supports our society, but using legal means to
reduce or eliminate taxes can dramatically increase the rate at
which your net worth grows, which in turn affects everything
else. Do you take the vacation or buy the house? Interestingly,
buying the house may provide enough tax benefits to pay for the
vacation. Are you using a ROTH IRA?
5. Failure to take advantage of company benefits.
Company-matching 401K contributions are the poster child of
benefits. Then there are benefits for medical, dental,
child-care, educational, etc. The decision to work or be a
stay-at-home-mom is not a simple as just matching net income
because company benefits affect both short and long term
planning. Many retirees work solely for the medical and dental
benefits. Harkening back to tax advantages, being self-employed
(for the right personality type) or a small business owner has
huge advantages.
6. Failure to aim to become self-reliant. The statistics remain
consistent that by age 65, 1 percent are wealthy, 5 percent are
financially independent, 6 percent are dead, and the remaining
88 percent are either still working because they have to or are
dependent on the government or family for support. The best
approach is to aim to be in a higher tax bracket when you retire
than you are now! Along the way, with proper planning, you will
discover that you may be able to avoid almost all those taxes.
7. Failure to review and update your plans. The stock market
dithers; real estate cycles; income climbs the corporate ladder
while expenses follow like a shadow; interest rates rise and
fall; families grow and shrink; and ultimately, a plan more than
a year old is likely to be out of date. Within a couple of years
it might be severely out of sync with your desires, costing you
growth in net worth or cash flow needed for retirement income or
costing your heirs (or favorite charities) millions of dollars.
About The Author: Robert T. Boyer, PhD, Vice President of San
Diego's Finest Real Estate
(http://www.SanDiegosFinestReal
concept of Real Estate Financial Planning to fill a void left by
the financial planning industry. Collaborative financial
planning helps clients earn millions of dollars.
