Important aspects to consider in organizing your financial picture.
When you think about your finances, there are likely a number of factors that make up the overall picture. And, over time, these pieces may change as your life evolves. Whether you’re a recent grad or early in your career, an individual with a busy family household or a longtime professional or business owner, periodic financial check-ins can offer a range of benefits.
Here are six financial to-dos that can help put you on the right track to achieving your goals.
A financial review is a simple way to get a clear overview of your broad financial picture and where you stand today. This type of personal inventory helps establish the foundation of where your life and wealth intersect, capturing your current financial situation—income, expenses, assets and liabilities—as well as your expectations, concerns, needs, wants, wishes and overall goals.
These details will help guide discussions on what strategies or types of planning make sense for you and can point you in the right direction. Completing a financial review annually can show how you’re progressing from year to year or as your situation changes.
Once you have a clear understanding of your current financial situation, the next step is to create a roadmap for your near- and long-term future.
A wealth plan addresses all aspects of your financial life—including your investments, taxes, retirement, insurance, estate and legacy planning—and helps define strategies to manage your wealth and reach your goals.
“Think of it like a blueprint for your financial life,” says Bobby Lovgren, head of Wealth Planning at RBC Wealth Management–U.S.
As you near retirement, you’ll also need to develop a strategy for funding the lifestyle you envision once you stop working. This involves identifying all your available income sources and determining how to cover your projected expenses in a tax-efficient manner.
Your financial advisor can use wealth-planning tools to illustrate the potential impacts of different scenarios, such as inflation or longevity.
Are you on track for retirement? Take three minutes today to make sure you’re ready when it comes time to retire.
Taxes are a crucial component of wealth planning. Efficient tax management involves understanding tax laws and regulations, utilizing tax-advantaged accounts, and leveraging available deductions, credits and exemptions to reduce tax burdens and maximize potential growth.
Having a mix of accounts with different tax treatments allows for greater flexibility when managing your taxes in retirement, and may even lower your lifetime tax bill, helping to preserve your wealth for future generations.
Strategies such as tax-loss harvesting, charitable giving and optimizing your investment portfolio may also help reduce tax liabilities. Talk to your tax advisor for guidance specific to your situation.
Part of managing your finances is maximizing opportunities on both sides of your balance sheet. Credit can be a strategic tool for on-demand liquidity, allowing you to quickly take advantage of investment opportunities that may arise, or providing temporary cash flow for unexpected expenses, without having to liquidate other assets.
“Many high-net-worth and ultra-high-net-worth clients use the full amount of credit available to them to reinvest and diversify their assets, from marketable securities to direct purchases of operating companies,” says Matt Franks, head of Wealth Management Lending at RBC Wealth Management–U.S.
If you have different sources of debt, consider consolidating them, as this may allow you to access a lower interest rate. If you already have a competitive rate on your debt, is the interest tax-deductible? If not, your financial advisor can help you explore options for restructuring your loan and minimizing interest costs.
Regardless of age, every adult should have a valid will that dictates how you want your property distributed after your death. Without one, those decisions are determined by state law, which may not reflect your intentions. Along with your will, other essential documents include powers of attorney (POAs) for both your financial and medical affairs, a living will and trusts.
Keeping these documents updated is as important as having them—outdated documents could lead to unintended consequences if circumstances have changed from what was originally recorded.
It’s a good idea to review these documents every few years or after significant life events, such as:
Proactively planning for the future can help make sure your wishes are respected and your affairs are managed according to your intentions, even if you become unable to make decisions for yourself.
Charitable giving is a powerful way to support the causes you care about and create a lasting legacy. It may also help lower your tax bill. If philanthropy is important to you, consider your giving strategy, including how, when and what you give. Many people focus on giving closer to the end of the calendar year—often in line with the holiday season and the year-end tax deadline—but that’s not the only option.
Beyond outright gifts or direct cash donations, there are many options for charitable giving, including donating appreciated securities, charitable bequests, setting up a charitable remainder trust or establishing a donor-advised fund or private foundation.
By aligning your giving with your personal or family values and goals, you can create a meaningful and effective philanthropic legacy.
“Wealth planning is an ongoing process that becomes more complex as you build wealth and set new ambitions for your legacy,” Lovgren says. Whether you’re just starting out or nearing retirement, having a clear understanding of your financial situation and a strategy for the future can help you navigate life’s challenges and opportunities with confidence.
Parts of this article were originally published on the RBC Wealth Management Canada website.
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