Know Where You Stand in 2016


As we begin 2016, you will undoubtedly see many publications on the internet, in the news, in the paper and so forth talking about how to get your finances in order for the New Year. The truth is that while saving an additional $100 of every paycheck, paying down credit card debt and allocating a couple percent more to your 401k are all great things, the very first step in the process needs to be: knowing where you stand. Anyone can try to check off the boxes on a financial to do list with the items listed above but does that necessarily provide the most benefit?

At Legacy Trust we believe the best approach to personal financial planning is to first assess your balance sheet. I liken this process to going to a doctor for the first time. The doctor more than likely is not going to start by just giving you prescriptions for anything that could make you feel better, instead he will ask questions and make an assessment. From there the best course of action will surface and you will have a plan tailored to your specific health needs. This same premise applies to personal finances and is different for everybody, no matter the amount of wealth they have accumulated.

The single greatest benefit to assessing your personal balance sheet is that you will be able to quickly see your financial strengths and weaknesses. You will be able to answer the all-important question “Am I living within my means?” Once that question is answered you may realize that changes need to be made, whether that means paying down debt or allocating more to a retirement account. The interesting thing about this question is that it is not dependent on your asset size; rather it is dependent on your net worth and lifestyle needs. For example, take a retired executive with $3 million of assets consisting of expensive homes and cars. Odds are good that this executive has a significantly lower income stream than they did while working. Therefore, if those homes and cars are not paid off they could be in some real danger financially (think 2008), not to mention trying to meet the same lifestyle needs as when they were fully employed (entertainment, vacations, property taxes and even maintenance on multiple homes). On the flip side, take a retired school teacher who has accumulated $500k in assets with minimal liabilities. They are probably used to living a more modest lifestyle and if they continue to do so will have little to worry about in retirement. In these examples, you can see that despite having a large pool of assets the retired executive could actually face more financial danger than the retired teacher.

All of this can be illustrated by assessing your personal balance sheet. From that assessment you will be able to key in on which of the boxes, if checked, will provide the most benefit to your unique situation. We are well-versed at reviewing balance sheets and uncovering the hidden risks to reaching financial goals so please do not hesitate to call with any questions and have a great 2016!