People do financial planning of all types to have greater confidence in their future and a better understanding of their current circumstances. We do our best to remind people that great financial planning is based on understanding that life truly is a journey of months and years not a single daily snapshot. Legacy planning reminds us of that journey and that we aren’t the only passenger on the ride.
Life is full of focused snapshots, especially this time of year. Our year end statements are arriving and people are asking how they fared. The tax return is due by April 15th and again we will have a snapshot of how much we must pay (or have paid) the U.S. government. It is very easy to get lost in the numbers with the snapshots placed in front of our eyes at regular intervals.
We often get caught up in the short-term view of our lives and we forget what’s important. This is often a challenge that young adults find themselves. They don’t begin saving at an early age in hopes that they will have more money later in life and begin to save then. After all, they need things! While this may be true, a habit does not get formed from an early age and as they grow older their mindset is not on their future but simply on the present.
The same can be said for adults when they view their year-end brokerage statements. Too often do we get hung up in relative performance to an index and lose sight of the performance of an account in relation to a goal – whether that’s for a down payment on a home or to be used as a source of income for retirement. For many investors risk management is the much more important than aggressively seeking out gains – no matter the cost. But what’s important is that everyone’s journey is different.
If a snapshot was all that mattered you would never convert an IRA to a Roth nor would you do legacy planning. A little time preparing for the inevitable can help your family and the other passengers on your ride carry out your wishes and deal with your intentions. We want to pay attention to taxation, fees and expenses, liquidity needs, privacy where possible and of course we want to make sure your assets land where you wanted them to wind up. While we often focus on our present needs it’s destructive to slide our future needs and obligations to the back burner, at least for too long. A study mentioned in a recent Time Magazine piece by Dan Kadlec noted that one in four American workers tap into their 401(k) or other contribution plan to pay for current expenses. As we progress into this new year remember to set your sights further than just tomorrow or the next day. Life’s journey should be treated more marathon and less sprint perspective.
Joseph “Big Joe” Clark, whose column is published Sundays, is a certified financial planner. He can be reached at bigjoe@yourlifeafterwork.com or 640-1524.
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'Big Joe' Clark: Your financial life is a journey of years, not a snapshot
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