Tax Law Advisors~ Finances - Budgeting, Life Cycle Planning & More: Articles, Tools & Resources You Can't Afford To Miss! ~Tax Law Advisors

~Tax Law Advisors provides customized pre-tax planning today, so Corporations and their Owners can enjoy a better tomorrow.~

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Let's face it: Nothing in life ever goes exactly as planned. And that goes double for money matters. How many times has this happened to you? Just when you think you finally have some breathing room in your budget, an unexpected expense comes along and wipes it out.

One way to prepare for the unexpected is through budgeting. In technical terms, budgeting is the systematic allocation of one's limited resources (income and liquid assets) toward a potentially unlimited number of needs and wants (expenses). To put it simply, budgeting is merely balancing your outgo versus your income.

Unfortunately, the word "budget" -sort of like "diet" or "economize" -- has negative connotations. Although sometimes tedious and difficult to stick with, smart budgeting can help you better control how your income is being spent - leaving you with more money to invest or put away for those inevitable rainy days. A budget is a financial plan for spending; not a bookkeeping chore of keeping track of every penny.

The Budgeting Process

Budgeting is essentially a management process that follows these steps:

1. Establishing your goals.

2. Estimating your monthly household income.

3. Estimating your monthly expenses.

4. Balancing the budget.

5. Putting your plan into action.

6. Adjusting the budget as necessary.

Step One: Establishing Your Goals

First, review your family situation (marital status, dependents, family additions or departures). This review will set the table for establishing your short-, intermediate-, and long-term goals. Short-term goals may be purchasing a new car, taking a vacation or building a new home theater. Intermediate-term goals might include changing careers, sending a child or children to college, or saving for a house downpayment. Longer-range goals include accumulating a retirement portfolio, buying a vacation home, and leaving a financial legacy to your heirs. Each of these takes money - and planning, including budgeting.

Step Two: Estimate Your Income

Whether your household income is regular, such as a paycheck every two weeks, or irregular, such as that received by a farmer or other person in business for him or herself, helps determine how a budget is established and followed. Whether expenses are regular or irregular also makes a difference in the budget.

Add together all your income sources including take-home pay, interest, dividends, bonuses, pensions, alimony and child support, etc. If you're self-employed, determine just how much you have available for living expenses by examining personal and family goals, business goals, and living and business expenses. If your income fluctuates, underestimate your income and overestimate expenses. Avoid relying heavily on bonuses or overtime pay.

Step Three: Estimate Your Expenses

Your expenses will likely fall into four categories: 1) fixed expenses, such as rent or mortgage, car payment, utilities, telephone, cable, and the like; 2) periodic expenses such as annual homeowners insurance, car insurance and maintenance; 3) flexible expenses including food and clothing, entertainment, travel, and other leisure activities; and 4) emergency expenses such as car accidents, home repairs, medical expenses, and so on.

Are you planning a major change during the coming year such as a move, changing jobs, buying a house, getting married, having a child, entering the job market or buying a new roomful of furniture? Be sure to account for these changes, because every major life event affects your budget.

Step Four: Balance Your Budget

Subtract fixed expenses, including an amount for investing and saving, from your expected income. Then, subtract the total amount of flexible expenses from what is left of income. If you need to cut back on your expenses, start first with the flexible expenses, then move to irregular expenses, and finally, to fixed expenses. If you have a surplus after subtracting expenses from income, consider adding more to your goal-related savings and investing.

Step Five: Put Your Plan into Action

This is probably the most difficult part of using a budget. Keep records of actual spending and compare them with your budget plan at the end of the month. By keeping records, you can better understand exactly where your money goes each month, discover if you've over- or underestimated certain expenses, and identify areas you might be able to cut back (like those daily $3 gourmet coffee drinks!).

Step Six: Adjust Your Budget

Adjust budget plan figures if necessary, based on the recordkeeping in Step 5. It may take several months of adjusting and re-adjusting before your plan works smoothly.

The real payoff of working with a budget plan and keeping records will come when you use your past year's budget and records to plan for the future. Budget records can help you pinpoint spending leaks or spot potential trouble before it occurs.

Some Smart Budgeting Tips

Keep it simple. Don't detail your plan to the penny. Keep track to the nearest dollar or even the nearest five dollars. This works only if you set your "breaking point" and stick to it. For example, if you prefer to keep track to the nearest dollar, set $.50 as your breaking point. If the amount to be recorded is $49.49, you drop the cents and write down $49. But if the amount is $49.50, you write $50. Such a system keeps some of the drudgery out of recordkeeping.

Be realistic. Consider all expenses, including vacations, spending money, alcohol, tobacco and hobbies. To build in a margin of safety in your plan, overestimate your expenses and underestimate your income.

Provide for personal allowances for everyone in your plan. Then give each person total control of his or her allowance. By providing everyone with an allowance, no matter how small, you are giving everyone money to spend as they wish when the urge comes. This is especially helpful in helping children learn that money is not an infinite resource!

Don't expect someone else's budget to work for you. When you see a budget in the newspaper or magazine, realize it is for a particular situation or for an "average" or "typical" family. It's important to tailor a spending plan to your individual needs and situation.

Distinguish between wants and needs. Buy what you need first. The wants belong in the "what's left over" category.

Borrow with care. Remember, you create a fixed expense each time you charge something or pay "on time." Even though it might give you pleasure to own something right now, consider all the interest you'll be paying and ask yourself if it's really worth the price. If possible, use cash for ALL your impulse purchases.

Plan for and develop an emergency fund! This is perhaps the most important element of all.

If you would like help in developing a budget that meets your income and expenses of today while designed to provide financial security for tomorrow, we can help. Please feel free to contact us for advice and guidance.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Source: Financial Visions, Inc.

~Tax Law Advisors~Tax Law Advisors~Tax Law Advisors~Tax Law Advisors~

~Tax Law Advisors provides customized pre-tax planning today, so Corporations and their Owners can enjoy a better tomorrow.~

~Tax Law Advisors~Tax Law Advisors~Tax Law Advisors~
______________________________________________

Financial planning means something different to everyone. For some, it's about getting by month to month on their paycheck, for others it's about watching how their stock portfolio performs each day.

Unfortunately, few of us feel completely prepared to meet our ongoing financial obligations and objectives. Worries about money have become one of the greatest anxieties of our day - witness the dramatic rise in financial-related publications, radio and television shows, and websites.

Because each person's situation, lifestyle, and goals are so different, there is no single turnkey solution for successful money management. However, we can identify several steps that successful people take in pursuing their financial goals. We call these steps "Life Cycle Planning" because each step can be tied to the attainment of certain life-defining events that almost everyone goes through.

Development of Human Capital

Human capital refers a person's ability to turn their skills and abilities into a livelihood. The development of these skills and abilities helps us maximize our income potential in a competitive marketplace.

In our early years, usually between age 18 and 25, we set ourselves on a course that largely defines our human capital potential. Each of us makes an investment in human capital, whether we realize it or not. For some this is an investment of time, gaining experience and skills on the job. For others it is an investment in trade school or college.

It should also be noted that, although our greatest focus on human capital development generally takes place in our early years, this is an investment we should continue to make and assess throughout our working careers. Your ability to earn income, now and in the future, is the most valuable asset you own.

Expense Management and Budgeting

Once your "human capital" investment begins to pay dividends in the way of regular income, you must begin to develop and apply management skills to your newfound earnings.

Without managing your expenses, your wants and needs will invariably outpace your ability to earn. By implementing some form of budgeting, you can begin to set your sights on saving and meeting your longer-term financial objectives.

A beginning budget can be as simple as setting aside a predetermined percentage of your earnings each month for saving, spending what is left until it is gone, then spending nothing more until next month. A more sophisticated budget takes into account irregular and flexible expenses, emergency expenditures, establishment of a "rainy day" fund, as well as saving and investing.

Ensuring Adequate Liquidity

As your budget begins to pay off in a healthy savings account, you might begin to wonder how best to apply your limited savings to your unlimited needs and wants.

Without exception, the first financial need you should meet is to have an emergency fund. An emergency fund allows us to cover unexpected short-term needs using cash instead of leveraging your future earnings through costly loans. As a general rule of thumb, your emergency fund should be adequate to maintain your standard of living for six months.

Ample Insurance Protection

A major disability, the loss of a family breadwinner, a fire in your home, a family member's major medical problem or need for skilled nursing care ... the most dramatic emergencies can seldom be paid for completely using personal savings.

Although such tragedies can create devastating individual financial hardship, the financial risk of such events can be shared by very large groups of families and individuals through insurance.

Life insurance, disability income insurance, property and casualty (P&C) insurance, long-term-care insurance, and major medical insurance all have a place in your "Life Cycle Planning."

Long-Term Funding Objectives

Once you've accumulated sufficient funds to cover your emergency needs and purchased protection against financial risks, you can begin saving for your long-term goals in earnest. We can help you design a plan to pursue your retirement objectives that fits with your personal financial goals, risk tolerance, and time horizon.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Source: Financial Visions, Inc.

~Tax Law Advisors~Tax Law Advisors~Tax Law Advisors~Tax Law Advisors

~Tax Law Advisors provides customized pre-tax planning today, so Corporations and their Owners can enjoy a better tomorrow.~

~Tax Law Advisors~Tax Law Advisors~Tax Law Advisors~
______________________________________________

The best financial decisions are made with the benefit of time, thoughtful consideration, and trusted professional advice. As tax time approaches, take the time to prepare for sound long-term financial decisions and minimize expenses, taxes, and the headache of organizing your finances at the last minute.

Organize Your Tax Records Early

In preparing for this year's tax filing, begin to organize tax records including year-end investment statements, capital gains and losses from asset sales, transaction records from real estate transactions, interest and dividend records for the year (1099s), payroll and withholding statements (W-2s), records corresponding with deductible expenses such as property taxes and insurance, business income and expense records, etc. Some of these will not come until January or February of the following year.

Review Your Insurance Coverages

At least once each year, gather your insurance records together and review the adequacy of your insurance policies. Be sure to evaluate all coverages, including life insurance, disability income insurance, homeowners insurance, auto insurance, liability insurance, renters insurance, long-term-care insurance, etc.

Store Your Documents Safely

All your hard-to-replace legal and financial documents should be stored in a safe and fireproof location. Consider renting a safe-deposit box at your local bank or credit union, or purchase a fireproof lockbox from your local office supplies outlet. Documents you should store include wills, trusts, powers of attorney, titles of ownership (your home, cars, etc.), Social Security cards, birth certificates, photographic negatives, list of personal possessions, and so forth.

Review Your Estate Plan

Does your will still fairly reflect your personal wishes for the distribution of your assets? Have the personal or financial circumstances or your beneficiaries significantly changed over the past year? Have you considered a gifting program to move assets from your estate to those you wish to enrich? Have you reviewed your estate plan in light of changing estate tax laws or changes in your personal financial position?

Prepare to Minimize Your Income Tax Liability

Consider estimating your federal and state income tax liabilities periodically to ensure proper withholding levels and quarterly estimated tax payments. This will prove especially important if you sell significant assets during the year or experience large swings in your income level. Consider maximizing your deductible expenses and savings such as qualified retirement plans, charitable giving, deductible expenses, etc. Be careful to meet all IRS dates and deadlines for withholdings and filings.

Review and Improve Your Balance Sheet

The one true path to financial independence over the long term is increasing your long-term saving and decreasing your debt. If you are not maximizing your tax-deductible employer sponsored retirement plans and your individual tax-advantaged saving plans, evaluate your monthly cash flows with an eye toward increasing your monthly saving. The other side of your balance sheet, the liabilities side, is equally important in maintaining a healthy personal financial position. Every effort should be made to eliminate completely the need for short-term debt (credit cards and debit balances) and to efficiently manage your long-term debt (mortgages).

Simplify Your Financial Holdings

Simplifying your financial holdings can eliminate much of the drudgery of financial recordkeeping. If you have credit cards you don't use, cancel them and eliminate the extra statements. Consider consolidating your credit lines to the greatest extent possible. Review your investment holdings for non-performing assets or redundant accounts and consolidate your investments.

To Sum Up...

Although you may be able to think of more exciting ways to spend your time, organizing your financial records and planning your financial future will pay huge dividends in the long run. Do what you can on your own and seek professional advice from a trusted advisor where additional planning needs to be done.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Source: Financial Visions, Inc.

~Tax Law Advisors~Tax Law Advisors~Tax Law Advisors~Tax Law Advisors