Your Personal Financial Condition Is Important Too!

By Leslie Munas
Manager, Tax Services 
Email Leslie

Business owners’ personal lives can often play second fiddle to their professional pursuits. But when it comes to personal finances, it’s risky to ignore the need to monitor and manage them.

Preparing a personal financial statement on a regular, periodic basis is of vital importance. Avoiding this assessment of your personal financial condition may put you and your family at risk of financial instability, both for the short term and long term. You should analyze it and make sure your personal assets and level of liabilities are consistent with your goals and objectives. Oftentimes people don’t want to prepare a statement, as they are fearful of what it might tell them. You must face reality.

If you’re not accustomed to organizing your finances, start by thinking of it as a simple inventory. It all boils down to keeping track of what you own and what you owe. What debts are lurking? Credit card and home mortgages? Money borrowed for business ventures? Are these at a level that is prudent and commensurate with your personal cash flow? Are these prudent levels given any changes in the macroeconomic environment?

Many people lack a clear understanding of net worth, which is basically every significant thing of value that you own (assets) minus your debts (liabilities). Assets include your home and any other real estate as well as cash, investments, cars, etc. Your net worth is important, but your access to liquidity may be of greater importance. How much cash or cash equivalents do you have access to in the case of an unexpected emergency?

Also think about what will provide you financial security in the future, such as retirement planning. Take advantage of the benefits of the Secure Act 2.0, which allows those approaching retirement (aged 50 or older) to make larger catch-up contributions to their workplace retirement plans, thus increasing their savings. Also optimize your strategy for withdrawing required minimum distributions (RMDs). To maximize your investment returns, you might want to keep money tucked away in your retirement account until the end of the year. Or you could make equal withdrawals throughout the year to ensure you receive a consistent retirement paycheck.

Take this time to brush up on your projected Social Security benefits and Medicare premiums. This year marks the first time in over a decade that Medicare premiums are not rising.

It’s easy to get caught up in the habit of living paycheck to paycheck, but you must focus on the long term, especially considering the unpredictable nature of the economy. It rarely, if ever, remains stagnant.

Keeping a close eye on your personal finances and taking a periodic, in-depth look at your financial condition will not only improve your financial stability, but it will also provide peace of mind.

For further assistance with your personal or business matters, please contact Leslie Munas at (317) 613-7857 or email Leslie.