When building a sound financial plan it is very important to be aware of 3 things that can destroy your hard work. They are taxes, death and disability. I know it is exciting to talk about stocks, bonds and wealth creation all the time but a good plan covers wealth protection as well! In this post we discuss taxes, death, disability and how they can prevent financial success for you.
Taxes
In this country we pay all different types of taxes.
- Sales tax
- Hotel tax
- Travel tax
- Sin tax
- Payroll tax
- Property tax
- Income tax
- Gift tax
- Estate tax
- Capital Gains tax
It’s important to understand that every single tax takes money out of your pocket and puts it somewhere else. When building your financial future the less money you come home with, the worse off you will be. That is why it’s important to understand the different types of accounts that are available to you and how to use them appropriately in your financial plan.
- Tax fee – example Roth IRA
- Tax deferred – example Traditional IRA/401k
- Taxable -example Brokerage account and bank account
You need to know how your money is taxed on the way IN and on the way OUT of any investment. The type of account and the different investments you buy will determine that. Also, how long you hold on to an investment plays a big part of how much tax you pay. The difference between long term capital gains vs. short term capital gains can be huge if you are in a high tax bracket!
Making money is great, but if the Tax Man takes a bulk of it, how ahead are you really getting?
You should discuss your tax situation with a CPA so you can minimize your tax exposure and maximize your dollars.
Dealth
We are all going to die.
But if you die young, would you want your family to continue moving forward? I hope the answer is YES. Your financial plan needs to have a contingency plan in place. Increase your emergency fund or use a life insurance policy to make sure your family has enough cash on hand to replace your income. This part of the plan becomes the foundation, then your family wealth can grow unencumbered because you know everyone is taken care of. Putting some form of protection in place will give you the freedom to invest and save for fun things like vacations, a big purchase and retirement. You won’t be bogged down worrying about the future if something were to happen. Without a formal protection plan in place, you might always be wondering “what if” and that might prevent you from thinking clearly.
Disability
Income is the biggest driver of your financial success. To accomplish your financial goals money has to be coming in. To save for retirement, to send your kids to college, to buy a house and just to live your everyday life, money has to be available. Like a car without gasoline, a household without income won’t go forward. What is your plan if you or your spouse can’t earn temporarily? Are you suddenly going to spend less? To protect against this problem you need to consider a larger cash position. You should also check out the disability programs you have at work. There is tremendous value in knowing what you have, who to call and how to file a claim if something were to happen. As a last resort, you might want to consider a personal disability policy if it makes sense in your situation.
Once you have a gameplan to reduce your taxes, protect yourself and your family, saving for your future will become fun again. Building wealth is way more exciting but it can all come crashing down if you don’t look out for Taxes, Death and Disability. The protection component of your plan is just as important as the wealth creation. But once its in place it’s not something you have to manage on a daily basis. So don’t overlook this piece and put a plan in place today.
-Jared
