Wednesday, January 2, 2002

CPAs urge residents to create financial plans

By JOHN THOMPSON
jthompson@TheCitizenNews.com

Whether it's a new home, a child's education or a secure retirement, most people know what they want out of life.

But the individuals who are most likely to achieve their goals, the Georgia Society of CPAs reports, are those who have developed and implemented financial plans.

A financial plan typically evaluates your current monetary situation, as well as identifies, estimates and develops strategies for meeting the cost of your long-term goals. A well-constructed plan covers all aspects of your economic life including investments, insurance, tax, retirement, estate planning and cash management.

A central component of any financial plan includes a long-term investment strategy that will help you accumulate the capital for meeting your goals. A good plan nvolves more than just picking the right investments.

In fact, CPAs say that your allocation of investments among different classes equities, fixed income and cash and cash equivalents can have a greater impact on your success than the actual investments you choose.

Once you've established an allocation that considers your tolerance for risk and your financial goals, the plan should focus on achieving diversification within each investment class.

Any review of your financial situation must consider your family's ability to maintain its present standard of living in the event of untimely death or disability.

With adequate coverage, loss of income due to death or disability should not necessitate major life-style changes. It is also important that your financial plan reflects adequate protection against losses resulting from damage to or loss of your home and personal property, including your cars.

While taxes should not drive your financial decisions, tax planning is important. To be most effective, a comprehensive financial strategy should include a year-round approach to making the most of various tax-savings opportunities, including tax-deferred and -favored investments, income shifting, effective use of deductions and credits, and managing debt.

For many people, planning for a financially secure retirement is a top priority. In developing your financial plan, it's important to estimate how much money you will need to support the life-style you envision.

Although Social Security and company-sponsored pensions may provide some income during retirement, it is unlikely that these resources will sufficiently cover your expenses. Therefore, it is important that your financial plan includes how you will accumulate the funds you need for a comfortable retirement.

Death is an eventuality that every financial plan must address. Estate planning assures the appropriate transfer at death of all assets you own. It also makes certain that you are utilizing the appropriate techniques for minimizing your potential liabilities and expenses and preserving your wealth for future generations.

Another important part of a good estate plan is choosing someone to hold a durable power of attorney for you, someone who can handle your assets in the event you are unable to do so.

Additionally, you will want to consider signing an advance directive that discloses the extent of medical treatment you want to receive in the event you become physically or mentally unable to communicate your wishes. Cash flow management encompasses everyday strategies for budgeting, managing debt and building an emergency cash reserve.

An analysis of your cash flow shows, for better or worse, how you earn and spend your money. You can use this information to adjust your expenses to cover immediate needs, while investing for long-term goals.

Developing a financial plan is an ongoing process. CPAs say that it's important that you review your plan at least annually and more often if there are major changes in your life, the economy or tax law.

The GSCPA is the premier professional organization for CPAs in the state of Georgia.

With more than 10,000 members throughout the state, the purpose of the GSCPA is to promote the study of accountancy and applicable laws, provide continuing professional education, maintain ethical and work standards, and provide information about accounting issues to the membership and the public. For information, visit www.gscpa.org.

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