By Brandon Cangany, CPA
Manager, Tax Services
You may have just completed your 2021 federal and Indiana tax returns, but now is the time to stay in your financial planning zone to make 2022 and beyond a “planned for” success. Keep all your tax forms and financial documents on hand to start preparing for a brighter financial future.
The best way to start is to prepare a personal financial statement. In layman’s terms, this is a list of all the assets you own as well as your liabilities (the things for which you owe a debt). Assets include your home and any other real estate as well as cash, investments, HSA accounts, retirement accounts and automobiles, etc. The next step is to measure your net worth, which is simply the mathematical difference between your assets (YOU own) and liabilities (debts you owe).
In addition to the cost savings you create through voluntary means like bargain hunting and coupon clipping, take a look at your forced savings, including your HSA, 401k, IRA plan or 529 plan for your children or grandchildren’s education. It’s important to invest in these personal retirement and savings plans because many financial experts believe Social Security, as we know it today, must change in order to maintain its financial integrity. It is better for you to control your personal savings than to rely on federal government programs.
In addition, this process may help you set a practical annual or monthly expense budget to keep your spending under control and possibly increase your savings. Taking a critical, objective look at your spending habits will help you better plan your future spending on those financial endeavors that are actually important to you and your family. Many who undertake this objective financial exercise are quite surprised how they actually spend their money. Planning for expenditures will implement discipline into your spending habits that might be missing. If you are married or have a significant other, this whole exercise must be a team sport — otherwise success will elude you!
Many people procrastinate on personal financial planning either because they don’t understand it or they’re afraid to face the reality of where they stand financially. Ignorance can be bliss. But as actor Christopher Parker said, “Procrastination is like a credit card: It’s a lot of fun until you get the bill.”
The earlier you hold yourself accountable for taking financial planning measures, the better off you’ll be for long-term financial security.