The Carr Report: How to ‘unmask’ your current financial health and wealth position

by Damon Carr, For New Pittsburgh Courier

When it comes to personal finances, many of us are oblivious to our current Financial Health/Wealth position. We have several goals that require money. We work hard! We pay our bills. We spend a few dollars on things that we enjoy. After we do that, we try to focus on goals—general savings, emergency fund, college savings, retirement savings, purchasing a home. Problem is—when we look at our account to see how much we can earmark for our various goals—the money is all spent. We’re left wondering “Where did our money go?” It’s as if our money has been wearing a mask, hiding from us in plain sight —preventing us from fulfilling our short-term and long-term financial goals.

In this article, I’m going to show you how to Unmask your current Financial Health and /Wealth Position. I’m going to walk you through the questions I ask and the process of what I review when putting together a Comprehensive Financial Plan.

What are your financial goals? It’s important to establish both motivation and purpose for what you’re seeking to accomplish—financially speaking. By establishing firm, specific goals, you lay down your dreams and vision for your future on paper.

What are your financial concerns? Some people are motivated by goals. Some people are motivated by fear. Most are motivated by both. Visualizing what you fear happening from a financial perspective can serve as a conscientious spirit—or the little voice in your head telling you not to do it—when your heart knows taking such action can set you back financially.

What do you think is holding you back financially? It’s our actions or lack thereof that’s preventing us from fulfilling our full potential. When you identify habits, things and/or people that hold you back from financial success, you have the foresight to remove those roadblocks from your life.

Income analysis—Thoroughly review all sources of income, looking to ensure income is consistent and stable.

Also explore options to bring in additional income if necessary

Net Worth analysis—This is your true financial report card. Assets: (what you own) minus Debt: (what you owe) equals net worth. Look at the two words —own and owe. Spelled relatively the same with the exception of the last two letters N and E. Key points here using the N and the E. Never Ever owe more than what you own. The goal is to always increase the things that you own and decrease what you owe.

Expense analysis—Thorough review of all recurring, non debt related items including utility bills, lawn services, insurance, alarm system, hair salon, barber shop, cigarettes, lottery, etc. Leave no stone unturned.

Credit Report/Debt analysis—Thorough review of all outstanding debts including credit cards, student loans, car loans, personal loans and mortgage loans. The goal here is to ensure everything is properly reporting and to get an accurate picture of loan balances and credit score

Savings/Investments—Thorough review of all savings and investments accounts. Ensure that every saving and investment has a mission statement associated with it—be it emergency fund, saving for vacation, car, home. Saving/investing for college or retirement. Wealth Building investments. By giving each saving and investment a mission statement, you better understand your time horizon. This also allows you to ascertain the best financial products to park your savings or investment in—savings account, money market account, CD, Bonds mutual funds, exchanged traded funds, retirement account, college saving plan. Understanding time horizon and risk tolerance also helps pinpoint proper asset allocation within your investments.

Budget Sculpting—Now that we know your income, debt and expenses, as well as how much you’re saving and investing monthly, we can budget sculpt. Budget sculpting is a process of seeing what percentage of your net income is going toward various debts, expenses, savings and investments. There are recommended percentages that I compare actual percentages to. We use this as a tool to quickly identify areas of over spending or under saving.

Tax Return Review—Review of tax returns helps to confirm that all income has been accounted for and looks to see that income has been stable, growing or decreasing over the past two years. If large tax refunds have been consistent over the past two years and filing status will remain the same, recommendations are made on how to modify W-4 form. This will amount to more money in paycheck and a smaller tax refund. People trying to build wealth look for tax shelters not tax refunds

Insurance review—We need insurance in case something happens. A review of all existing insurance policies including health, life, car, homeowners, renters, disability, long-term care and extended liability umbrella policy. Goal here is to ensure you understand your insurance and that you’re properly insured.

Pension Plan—A review of projected pension: If you’re one of the lucky ones who will receive a pension upon retirement, it’s important to understand your projected pension. How much to expect? Is it a lifetime benefit? Guaranteed for X number of years? Will your spouse receive your pension in the event of an untimely death.

Social Security Statement—Social Security used to send out a statement three months before your birthday. Now they only send to people 60 and older who are not receiving social security benefits. You can request a statement online. This will provide clarity on projected social security income upon retirement

Estate Planning—Discussion about the importance of a will. Do you have a will? Is it updated to reflect your current status and wishes? Who gets your stuff? Who will be custodian of your minor children? Who do you need to designature as your Health Care and/or Financial Power of Attorney in the event you can’t speak for yourself. Also discussion about items such as Life Insurance, Retirement plans and other property that can be bequeathed outside of a will. Is your beneficiary designation on these items updated to reflect current wishes?

(Money Coach Damon Carr can be reached at 412-216-1013)

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