Tag Archives for " insurance "

Apr 28

8 Strategies For Financial Success

By Chris Chen CFP | Financial Planning

8 Strategies For Financial Success

8 Strategies for Financial SuccessIf you fail to plan, you plan to fail. That was the subject of a presentation I made at Sun Life Financial in Wellesley. This may sound like an old cliché, but it illustrates an essential aspect of personal finance: a financial plan is critical.

Regardless of age, marital status, or income, it is essential that you have a personal financial plan. Creating a strategy for financial success is easier than it sounds; you just need to know where to start. The eight financial management strategies below can serve as a roadmap for straightening out your finances and building a better financial future.

1. Develop a Budget

There are many reasons to create a budget. First, a budget builds the foundation for all your other financial actions . Second, it allows you to pinpoint problem areas and correct them. Third, you will learn to differentiate between your needs and your wants. Lastly, having a financial plan to cover expenses planned and laid out will give you peace of mind. Once done, be sure to stick with it!

2. Build an Emergency Fund

As part of your budget, you will also need to plan for an emergency fund. As current events remind us, we cannot anticipate the unexpected. We just know that the need for an emergency fund will come sooner or later . To cover yourself in case of an emergency (i.e., unemployment, injury, car repair, etc.), you need an emergency fund to cover three to six months of living expenses.
An emergency fund does not happen overnight. It needs to be part of your budget and financial plan. It also needs to be in a separate account, maybe a savings account. Or some in savings and some more in a CD. The bottom line is that it needs to be out of sight and out of mind so that it will be there when needed.

3. Stretch Your Dollars

Now that you know what you need and what you want, be resourceful and be strategic when you spend on what you want. For instance, re-evaluate your daily Dunkin Donuts or Starbucks habit, if you have one. Can it be weekly instead of daily? If you eat out for lunch every day, could you pack lunch some days? Do you need a full cable subscription?

4. Differentiate between Good Debt and Bad Debt

It is important to remember that not all debt is created equal. There is a significant distinction between good debt and bad debt. Good debt, such as a mortgage, typically comes with a low-interest rate, tax benefits, and supports an investment that grows in value. Bad debt, such as credit card debt, will burden you with high-interest rates, no tax benefits, and no hope for appreciation. Bad debt will actually reduce your standard of living. When looking at your financial plan, you want to make sure that you are keeping bad debts to a minimum. Now that I think of it, don’t keep bad debt to a minimum: make it go away.

5. Repay Your Debts

One of the most important steps to a successful financial plan is paying back your debts, especially the bad ones. Because debt will only increase if you do not actively work to pay it off. You should include a significant amount of money for debt repayment in your budget.
The fact is that paying off debt is a drag, and sometimes it is difficult to see the end of the tunnel. One way to accelerate the process of paying debt down is to pay strategically . When you pay more than your minimum payments, don’t spread it around all your debts. Concentrate your over-payment on a single debt, the one that’s closest to being paid off. It will make that payment go away faster. And when it’s gone, you can direct the liberated cash flow to the next one, and so on.

6. Know Your Credit Score

A high credit score will make it easier to get loans and credit cards with much more attractive interest rates . In turn, this will mean less money spent on interest payments and more money in your pocket. Take advantage of the free credit report that the credit companies must provide you free of charge annually. Make sure that there is no mistake in it.

7. Pay Yourself First

Set aside a portion of your paycheck each month to “pay yourself first” and invest in a savings or retirement account. Take advantage of the tax deferral option that comes with many retirement plans, such as 401(k) or IRAs. If you have just completed your budget, and you don’t know how to do it all, tax-deferred retirement accounts help you reduce taxes now . Also, think of the matching funds that many employers offer to contribute to your 401(k). They are actually part of your compensation. Don’t leave the match. Take it.
In my line of work, people often tell me that they will never retire. The reality is that everyone will retire someday. It is up to you to make sure that you have financial strategies for successful retirement.

8. Check Your Insurance Plans

Lastly, review your insurance coverage. Meet with your Certified Financial Planner professional and make sure that your policies match the goals in your financial plan. Insurance is a form of emergency fund planning . At times, you will have events that a regular emergency fund won’t be able to cover. Then you will be happy to have property or health or disability or long term care or even life insurance. 

If you have any questions or require additional assistance, contact a Certified Financial Planner. He or she can help you identify your goals and create a financial plan to meet them successfully.

Starting your financial plan is the easy step. The hard part is implementing and moving to the next step. Don’t do it alone, and let me know if I can help.

 

 

Nov 26

8 Reasons you need a Business Valuation

By Jason Berube | Financial Planning

8 Reasons for a Business Valuation

Why you need a Valuation

If you value your business, you should know the value of your business. Every business owner should have an up-to-date business valuation wherever you are in your business’s lifecycle. It is important to know the value of your business sooner rather than later. For a variety of reasons, owners like you will want to have an ongoing understanding of where you stand.  In this post, I will be describing eight of the most common reasons for valuing ongoing businesses, the different valuation methods, and advice for future planning. 

1. Measuring Your Company’s Growth A business valuation delivers a calculated benchmark for comparing your annual growth. Specifically, a valuation report details areas for improvement and what is having a negative impact on your business, such as unstable cash flow, poor systems and procedures and key staff dependencies. Correcting these negative impacts can often translate into opportunities for business and valuation growth.

2. Selling your Business – This is one of the most common reasons for needing a valuation. Knowing your business’ true value and how to increase its Earnings Before Interest and Tax (EBIT) is crucial if you’re planning to sell (as EBIT is a critical factor in valuation). Much like using a valuation to measure your business’ growth, in the case of preparing for a sale you can use the valuation to identify areas for improvement and strategically implement developments to improve your business’ value by the time you plan to sell. Even if you want to sell only a percentage of your company, to get a partner, for example, an owner will need to know the value of the interest being transferred.

What is Earnings Before Interest and Taxes (EBIT)? In accounting and finance, EBIT  is a measure of a company’s profit that includes all income and expenses (operating and non-operating) except interest expenses and income tax expenses.

3. Attracting Investment Opportunities – You never know when an attractive opportunity will present itself. A valuation can be like your business’s resume for potential investors. It provides a snapshot of your business performance in the current economic climate. If you are seeking investors, annual valuations are essential.

4. Planning for expansion – When using a business valuation to measure your business’ growth, you might also decide that it’s the right time to expand your business.  An annual valuation provides an accurate performance benchmark and can make it easier to obtain funding from lenders and financial institutions. Having completed business valuations regularly can help you plan strategically and grow at the right time. 

5. Retirement PlanningMany business owners put their heart and soul (not to mention their life savings) into their business, with the hope that it will one day provide them with a retirement nest egg. If your long-term goal is to retire comfortably on the proceeds of the sale of your company, you need to be prepared.  A periodic update of the value of your company can help you determine if you are on track, and if you are not, what corrective measures to implement.

6. Implementing an EXIT strategy – Every exit plan should align with the owner’s business and personal goals. You have worked a lifetime to build your business into a profitable, well-run operation. A successful exit from a business takes considerable planning. Annual business valuations create a ‘starting point’ for the planning process. No matter what exit strategy you choose (merger/acquisition, sale to employees, etc.), you will need an accurate insight into the value of your share of the business. Regular business valuations will provide a clear picture of your business’s financial position at all times, and help you to achieve the best possible outcome when it is time to ‘exit’.

7. Litigation – If the Principal/Owner of the business is involved in legal proceedings such as a divorce or other lawsuit, the business may need to be valued as part of a property settlement. Divorce and legal disputes can sometimes be difficult topics to discuss. By implementing regular business valuations you’ll have an up-to-date financial record of your business assets which can be useful in legal proceedings such as a divorce or an audit investigation with a government agency.

8. Insurance coverage – Buy-sell arrangements between heirs of the owners’ estate will often include a life insurance requirement so that funds are available in the event of a co-owner’s death. The other co-owners are paid a lump sum benefit, which is then used to buy out the interest of the deceased’s surviving family members. An up-to-date business valuation is vital for this agreement. Insurance companies will ask for it, as your family’s/estate will be paid according to your share of the business value upon your death.

Three Approaches of a Business Valuation

Did you know that there is more than one approach to valuing your business?

There are several business valuation methods. The three most common types of business valuation are the Cost Approach, the Income Approach, and the Market Approach. While methods under each approach rely upon compatible sets of economic principles, the procedural and mathematical details of each business valuation method may differ considerably. 

Businesses are unique and putting a price on a company is complex. Cost, income, and market data must all be considered in order to form an opinion of value. 

The Cost Approach looks at how much it would cost to reconstruct or replace your company (or certain assets that are part of it). When applied to the valuation of owners’ or stockholders’ equity, the cost approach requires a restatement of the balance sheet that substitutes the fair market values of assets and liabilities for their book or depreciated values.

The Income Approach looks at the present value of the future economic benefits of your company. That future is then discounted at a rate commensurate with alternative investments of similar quality and risk.

The Market Approach measures the value of your company, or its assets, by comparing it to similar companies that have been sold or offered for sale. This information is generally compiled from statistics for comparable companies. Where the price represents a majority interest, the higher value is recognized and reflected in a higher price or a premium paid. However, the value of a closely-held company or its stock must reflect its relative illiquidity compared to publicly traded companies. A discount, or a reduction in the indicated marketable value, is made for this factor.

Planning for Your Future

Just like a medical checkup, business valuations should be done regularly since your business value can fluctuate widely depending on market conditions, competition, and financial performance. With so many reasons for knowing the value of your company, having an annually updated company valuation has become a best practice. A good business person knows their position and options at all times so they can make well-informed decisions.

A business is an important asset with very different characteristics from most other financial assets. Handling it correctly to maximize your net worth starts with periodic valuations. It also takes a wealth manager with experience catering to the needs of small business owners.

 

 

Sep 16

Long Term Care Considerations for Retirement Planning

By Chris Chen CFP | Financial Planning , Retirement Planning

Long Term Care Considerations for Retirement Planning

Long Term Care is no one’s favorite topic. However, most of us will require some form of long term care at some point in time, when we are no longer able to do everything for ourselves that we used to . Hence LTC should be addressed in a financial plan or a retirement plan.

For many of us LTC is the most unpredictable and least planned for expense of  retirement . We just don’t have a very good way to predict how much long term care we will need, when we will need it, and how much it will cost. Paradoxically, this is exactly why planning is needed as part of normal financial or retirement planning.

According to the Federal Government, Long Term Care is the range of services and

Long Term Care

support you will need to meet health and personal care needs over a long period of time. LTC is not medical care , but rather assistance with the basic personal tasks of everyday life.

According to Genworth, a prominent provider of Long Term Care Insurance, the median annual cost in 2013 for a semi-private room in a nursing home is $75,405 per year. Based on my experience LTC costs in Massachusetts are much higher than that.

Who Pays for Long Term Care?

People often assume that Medicare or Medigap (the supplemental coverage for Medicare), or even regular health insurance will absorb the cost of their Long Term Care expense. Unfortunately, that is not the case.

In general, most people who need Long Term Care pay for it out of their own assets. Once there is no money left, Medicaid will usually take over. Take note that Medicaid is a government welfare program . This approach works best for people who have enough assets to cover any foreseeable circumstance, or people who just don’t have enough assets worth protecting.

Long Term Care Insurance

That’s why Long Term Care insurance is an important part of a financial plan . For those who have it, long term care insurance will pay for your Long Term Care expenses, up to the limit of the policy. This is a way to preserve assets for other purposes, including for your legacy.

From a tax standpoint, it is worth noting that the premiums for most classical LTC policies available today are deductible from taxable income within the limits specified by the IRS. In addition, up to certain limits, benefits are not taxed as income. Take this favorable tax treatment as a sign that Uncle Sam would like to encourage you to be covered!

So, Long Term Care insurance helps pay for long term care expenses , LTC insurance helps preserve your assets and your legacy, and LTC insurance is potentially tax deductible. So why are so many people resistant to traditional Long Term Care insurance?

First, it is expensive. Although, we might point out that the cost of insurance is normally much less than the cost of Long Term Care itself.

Second, the possibility that the insurance policy may not be used, for instance if death happens suddenly, is enough to stop many people from acquiring Long Term Care insurance. The thought of paying premiums for years, and not collecting a benefit would make the insurance a waste. For people who feel like that, there are alternatives.

Don’t Waste the Premiums

There are LTC insurance products that allow you to “not waste the premiums” . They allow you to get Long Term Care coverage if needed, and have an opportunity to get the premium paid back in case the Long Term Care benefit is not used.

Although, the details of these products is beyond the scope of this post, suffice it to say, that these alternatives can provide a lot of flexibility in a financial plan.

These three approaches (pay out of assets, traditional long term care insurance, and “not waste the premium” alternatives) all offer different benefits and should be matched to the correct circumstance and individual preference. If you need to figure out which option works best for you, get help from your financial planner.

Check our other posts on Long Term Care:

Planning For Long Term Care

Should You Cancel Long Term Care Insurance