Preparing Beats Repairing
A professional adviser can help get your financial house in order, but to get started you need to know what you have.
It was only a little more than a year ago that the global pandemic changed our world dramatically. As a whole, the veterinary community responded very well and many practices flourished financially. However, everyone seems mentally, physically and emotionally exhausted, and we still have a long way to go to beat COVID-19.
To help prepare for the future, let’s look at the past. Think back to March 2020, when the announcement came that we had to shelter at home. Schools, restaurants and bars closed, sporting events halted and whoever could worked remotely. The economic uncertainty was immense and many people faced great fear about almost every facet of life, including their finances and financial security.
At that time, how did you feel from a financial point of view? Were you calm and at peace? Did you have enough money set aside in safe, liquid investments to meet your living needs (above projected income) for two years? Were you debt-free with the exception of a home mortgage or student loans? Were you confident that you would not have to touch your investments earmarked for midterm goals and retirement? If not, please read on.
Another crisis will occur someday, whether an economic recession, personal illness, significant stock market decline or something we could never imagine. So, what are you to do?
Gather All Your Records
The first step is to identify and organize all your financial documents. You must know what you have and where it is. We are amazed how many successful people have never taken the time to get their financial life organized. Procrastination, busyness and fatigue are the reasons, but they’re just illegitimate excuses.
Assembling the following documents will change your life for the better.
1. Net Worth Statement
Figure out all your assets (checking and savings accounts, investment and retirement accounts, home and business values) and your liabilities (mortgage balance, consumer debt such as credit cards, student loans and car loans).
2. Income (Cash Flow) Statement
List all your income sources, your savings and monthly spending by category (fixed and discretionary expenses). Doing it will show you where your money goes. If you cannot master this through simple discipline, your odds of financial success and security are low. Mitch Anthony, a colleague, friend, and financial life coach, lists these four money categories:
- Live: How much do you spend on lifestyle? Think of needs, wants and wishes.
- Give: How much do you give to charitable causes?
- Owe: How much do you pay in taxes and in debt payments such as a mortgage?
- Grow: How much money do you save and where is it? List short-, mid- and long-term savings)?
3. Insurance Summary
List all your life, disability, long-term care and personal liability umbrella coverage, as well as property and casualty protection (vehicle and homeowners). You want to prepare for the unexpected, which could have great financial consequences.
4. Estate Planning
Summarize will, revocable trusts, powers of attorney for health care and financial decisions, and living will (advanced health care directive).
The basics are done. What’s next?
Get an Independent, Objective Second Opinion
Congratulations, you now know what you have, where it is and where it goes. But do you know where you really stand? Are you on track to weather the next storm? Can you achieve your objectives? Can you answer “How much is enough?” Every situation is unique.
Consider interviewing and hiring a fee-based certified financial planner. You can find one at cfp.net.
Here is what a financial planner can help you achieve:
- Collaborate with your spouse to establish goals and quantify the cost of each over the short, mid and long term. You want to prioritize all the goals.
- Determine a strategy to accomplish each goal and assign a time frame. How much will something cost, how can it be funded and when should it be accomplished? This strategy is updated over time so that you always know whether you are on or off track.
- Analyze your net worth and cash-flow statements.
The most common red flags we see with new clients involve:
- Investments: Unnecessarily high fees that erode returns; lack of global diversification; improperly allocated investments relative to needs; and large cash balances that exceed short-term needs. An analysis might be able to reduce the fees and expenses of your investments and better allocate your assets to increase expected returns.
- Retirement plans: For many veterinarians, their SIMPLE IRA, 401(k) or profit-sharing plan account is their largest and fastest-growing retirement asset aside from the clinic. These accounts sometimes are handled by a long-time business acquaintance or insurance agent who might not specialize in retirement plans. If not closely monitored, high fees, poor investment returns and a lack of prudent governance can erode returns and leave you with unnecessary exposure as a fiduciary of your employees’ plans. Commit to seeking a second opinion.
- Cash flow: Many times you can easily save money if you understand where your money goes and are more intentional about your day-to-day spending. Consider using a data aggregation tool such as Intuit’s Mint, Quicken Deluxe or Dave Ramsey’s EveryDollar app to track and categorize spending.
- Insurance: The adage “You never know what you have till it’s gone” is true when risk management vehicles are analyzed. What is the cost to your long-term goals if you become sick or hurt and unable to work? What happens to your business and family if you die unexpectedly? What if you are sued and found liable for a serious traffic accident? These events can be quantified and planned for efficiently and in many cases inexpensively if you have the right insurance policies. The failure to plan well in this area can be devastating.
- Estate planning: Too many people lack estate planning documents. If that describes you, don’t feel bad; you’re normal. Now is the time to get these important documents by engaging an estate planning attorney. Furthermore, many times we see that estate planning documents that are in place do not reflect current wishes because so much time has passed. Having these important documents can save the considerable expense of probate administration and can ease the transfer of wealth to your loved ones. People have a greater sense of peace when these documents are in place and up to date.
Keep on Track and Stay Accountable
Reviewing all your assets and developing a financial plan is great. However, if you don’t review your progress and build in accountability, your odds of success are diminished. The bottom line is this: Tracking your finances and changing needs is difficult given the challenges and distractions of life. Everyone needs a coach to encourage and guide them. We recommend engaging a trusted coach twice a year to review every facet of your financial life, dramatically increasing your odds of success.
Financial Wellness co-columnist Robert A. Sparrow is a partner with Triune Financial Partners LLC. A graduate of Rockhurst College, he has been in the financial services industry for more than three decades. Learn more at triunefp.com. Co-columnist Fritz Wood is a veterinary industry veteran with a special interest in finance.