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Overlooked financial planning opportunities: Personal finance edition

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family on a beach discussing personal financial planning

Achieving personal financial wellness is a journey rather than a destination. The process evolves over time with your changing circumstances—the start of a new business, the arrival of children, the sale of a business or a change of industry, as just a few examples—and requires constant reassessment. The financial planning strategy you employ today could (indeed, often should) be quite different from the one you rely on in future. Changing that plan can be the key to financial success and independence.

But along the way, it’s common for gaps to emerge. Why? Life gets busy, business growth accelerates, kids or an aging parent require more of your attention. In addition, those strategic financial needs may become more complex.

If you own and operate a business, for example, tax and estate planning requirements, alone, can be vexing for anyone without specific accounting expertise. In many cases, entrepreneurs will prioritize running and growing their business, but may overlook opportunities to drive their personal financial success. That kind of prioritization is understandable though it can lead to major oversights and challenges years later.

Not surprisingly, there are several financial opportunities that often go overlooked. The good news: they can be easily addressed with proper planning principles to set you and your family on a path to financial wellness.

Tear down those financial planning silos

For business owners and incorporated professionals especially, it’s not unusual to look at their personal and corporate financial needs as being distinct from one another. The reality, however, is that both are inherently interconnected. Your personal financial planning strategy should reflect those linkages and be developed accordingly. What does that mean in practice? Taking tax planning as an example, it would mean ensuring that everything from shareholder agreements to your total compensation are structured in the most optimal ways to minimize your potential tax burden.

We can take it a step further, looking at estate and business succession planning in tandem. Considering how you plan to exit your business (or what income it may deliver after you’ve exited, transitioned the company to a new leader, yet retained ownership shares) is important not only to determine the cash flow it may produce to help you cover later-year expenses, but also so you can develop an effective estate plan that may employ structures such as family trusts and other mechanisms to minimize taxation for yourself or your heirs.

There are many considerations, but the key takeaway is to always view your situation holistically by taking every aspect of your financial self into consideration when making plans.

Be proactive about estate planning

One of the most challenging aspects of talking about the end is starting that process. Specifically, we see that important discussions around matters such as estate planning are often shoved to the sidelines because people don’t want to acknowledge their own mortality, or don’t prioritize the process because they’re occupied with personal or business matters—usually both. But we all know what they say about the inevitability of death and taxes … both of which are at the core of estate planning considerations.

By developing an estate plan well in advance of your eventual (hopefully very aged demise)—even as early as your mid-40s if some combination of a business, large family or significant wealth and assets are involved—you can rest assured that your exact wishes will be carried out upon passing. It’s also an important aspect of mitigating your estate’s eventual tax burden, setting your family up for financial success and reducing the risks of inter-family feuding over money and assets such as the family cottage (see our previous blogs on cottage succession and issues such as business shareholder agreement structuring to learn more about the many benefits of proactive estate planning).

From preparing (and properly structuring) wills to strategic tax planning that takes the full gamut of tax mitigation tools into consideration, it’s never too early to begin estate planning. Last point: be sure to involve your full financial team in the process, from your wealth manager/financial planner to your accountant, lawyer and insurance advisor. Each of these professionals will focus on their own areas of expertise, but you’ll need them working together, taking an integrated approach to ensure that various estate planning measures are properly aligned to close any evident gaps in your personal financial portfolio.

Make sure you have the right insurance

Many entrepreneurs and incorporated professionals are underinsured, over-insured or lack the optimal coverage for their needs. Unfortunately, many are sold products that don’t adequately address their present and future financial goals. The best insurance advisors take an integrated view of your personal finances and then suggest a range of insurance solutions that will typically include some combination of living benefits and life insurance. The objective is to protect you and your family in the event of a catastrophic accident, illness or untimely death, providing peace of mind that you’ll be covered in a worst-case scenario.

But let’s remember that life insurance products can be used as a tax-efficient tool to mitigate risk, build wealth and/or transfer it between generations. Other solutions such as key person insurance can be used to protect a family business and provide additional financial security. As we note in a recent blog it can also be a prerequisite when applying for bank financing. Work with your advisor to build a portfolio that leverages the full spectrum of life insurance solutions, then review it regularly in case updates are necessary as your lifestyle circumstances change.

Take time to assess your definition of total wellness

Most of us want to earn substantial incomes and build wealth that can be shared with our loved ones. But how much do you really need? How will that wealth contribute to your overall financial wellness? It’s less about figuring out a magic number and more to do with setting lifestyle goals and working backwards to determine the cash flow requirements to achieve them. All too often we earn and build wealth without taking stock of what matters most, only to look back years later wishing we’d planned better and been able to free up more time along the way to spend with those who matter most.

So, whether you hope to build a lasting philanthropic legacy, to leave wealth to your children or to build a retirement fund that ensures you can spend freely after transitioning into the next phase of life, work with your financial advisor and other professionals such as your account or portfolio manager to set a clear plan for the future, employ strategies to mitigate your tax burden and put financial wellness at the top of your wealth-generation priority list.

The Bridgewell Team  

To learn more about Benchmark by Bridgewell, contact a member of our team now.

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