Tax Planning

Financial Planning: Helping You See The Big Picture

As a financial planner, it always shocks me to hear some of the reasons people have for not having a financial plan in place.

“I don’t have enough money yet”

“I’m too young”

“It’s too expensive”

The question I usually respond with is: “Do you picture yourself owning a new home, launching a business, starting a family or retiring comfortably?”  These are just a few of the financial goals that may be important to you, and each comes with a price tag.

This is where financial planning comes in. Financial planning helps you target your goals by evaluating your whole financial picture and outlining strategies that are tailored to your individual needs and available resources.

Why is financial planning important?

A financial plan serves as a framework for organizing all of the pieces of your financial life. With a financial plan in place, you'll be able to focus on your goals and understand what it will take to reach them.

One of the main benefits of having a financial plan is that it can help you balance competing financial priorities. A financial plan will clearly show you how your financial goals are related--for example, how saving for your children's college education might impact your ability to save for retirement. Then you can use that information to decide how to prioritize your goals, implement specific strategies, and choose suitable products or services. Best of all, you'll know that your financial life is headed in the right direction.

The financial planning process

Creating and implementing a comprehensive financial plan generally involves working with financial professionals to:

 
  • Develop a clear picture of your current financial situation by reviewing your income, assets, and liabilities, and evaluating your insurance coverage, your investment portfolio, your tax exposure, and your estate plan

  • Establish and prioritize financial goals and time frames for achieving these goals

  • Implement strategies that address your current financial weaknesses and build on your financial strengths

  • Choose specific products and services that are tailored to help meet your financial objectives

  • Monitor your plan, making adjustments as your goals, time frames, or circumstances change

 

Why can't I do it myself?

If you have enough time and knowledge - you absolutely can. Keep in mind that developing a comprehensive financial plan typically require expertise in several areas. It is also difficult to give yourself objective advice. A financial professional can give you, fact-based information and help you weigh your alternatives, saving you time and ensuring that all angles of your financial picture are covered.

Staying on track

The financial planning process doesn't end once your initial plan has been created. Your plan should be reviewed at least once a year to make sure that it's up-to-date. It's also possible that you'll need to modify your plan due to changes in your personal circumstances or the economy.

Common questions about financial planning

 

What if I'm too busy?

Don't wait until you're in the midst of a financial crisis or 10 years out from retirement before beginning the planning process. The sooner you start, the more options you may have.

Is it expensive?

This a typical assumption based on some stereotypes that are quickly becoming outdated. If you envision an older man in a fancy office who profits off the financial products you buy — well, it’s probably time to take another look. We’ve redesigned the cost to be more affordable for the younger generations. 

Is the financial planning process complicated?

Each financial plan is tailored to the needs of the individual, so how complicated the process will be depends on your individual circumstances. But no matter what type of help you need, the goal is to make the process as easy as possible.

What if my spouse and I disagree?

This is more common than you would think, but I’ve been trained to listen to your concerns, identify any underlying issues, and help you find common ground.

 

Conclusion

Your financial health — just like the physical or mental kind — takes time and effort. We all have financial goals and, in many cases, there are several that require our attention at any given time. Having a well-designed financial plan in place will help you navigate those important decisions and keep you on track. By starting earlier in life, you have the advantage of time. Don’t let your “fears” stand in the way of making real progress.

As a financial planner, my goal is to make every effort to help you make smart financial decisions and hopefully avoid making crucial mistakes. I’m invested in your success. If you’re on the fence, please reach out and ask me questions.

How Accurate is Your W-4 Withholding?

As you are probably aware, in most cases federal income taxes are withheld from your paychecks. But did you know just how much control you have over the amount that is actually being withheld? In this blog post we’ll discuss the importance of having an accurate W-4 holding, including how recent changes to the tax code present a unique situation for taxpayers in 2018.

W-4 Breakdown

Let’s start with how the W-4 actually works. In a nutshell, your employer adjusts your gross pay and calculates how much federal income tax to withhold from your paycheck based on the withholding allowances you claim on Internal Revenue Service (IRS) Form W-4 (Employee’s Withholding Allowance Certificate). Each allowance you claim exempts a portion of your income from federal tax withholding and thereby increases what you receive in your paycheck. So, if you claim too many allowances, not enough tax will be withheld from your paycheck, and you will owe the IRS come April 15. If you claim too few allowances? An unnecessarily high amount of tax will be withheld from your paycheck, and you will get a tax refund.

Of course, no one wants to get hit with a large tax bill. But getting a tax refund is not necessarily a better option. It simply means you have paid more than your share in federal income tax and essentially have given the federal government an interest-free loan. As such, the optimal result from a cash flow and financial planning standpoint is to land right in the middle: maximizing income received in each paycheck without owing additional taxes when you file.

Time to check your W-4 Withholding

Best practice is to review your W-4 annually. It is especially important to check when you experience a major life event, such as marriage, birth or adoption of a child, a spouse getting or losing a job, or a significant pay raise or pay cut. Each of these events can directly affect the amount of tax you will owe. This year presents a unique situation, however, because the implementation of the Tax Cut and Jobs Act means that everyone’s tax situation has changed in 2018. With seven new income tax brackets, many people, making the same income in 2018 that they did in 2017, will find themselves in a lower tax bracket. This means more money in their paychecks in 2018 compared with 2017. The new tax law also increased the standard deductions across the board and eliminated miscellaneous itemized deductions.

So what does this mean to you?

The amount you will owe in federal income tax, the deductions you will be able to take, and the amount that should be withheld from your paycheck will have all likely changed.

Finding your “Sweet Spot”

The simplest and most accurate way to determine your appropriate W-4 withholding election is to use the IRS Withholding Calculator, available on the IRS’s website. Keep in mind that this calculator is designed for most taxpayers.

The calculator will ask for your filing status, your family situation, your income, your current withholding, and other information that could affect your 2018 taxes. If the calculator recommends adjusting your withholding, there’s no need to wait! You can adjust your W-4 withholding with your employer at any time, and the change will be reflected in your future paychecks.

Want to learn more?

Of course, this is a general discussion of ensuring accurate W-4 withholdings. If you have additional questions or would like more in-depth information about your withholding, feel free to reach out to me for a free consultation.

 

2018 Commonwealth Financial Network®