Published: July 17, 2006 10:18 am         

Tax returns can help achieve financial dreams

With tax returns completed and mailed, most people breathe a sigh of relief and forget about the IRS for another year. However, the information you gathered to satisfy Uncle Sam may be just what you need to begin realizing your financial dreams.

Developing a personal financial plan begins with accumulating much of the same data needed to prepare your income taxes. It is the perfect time to start on a financial plan. Taxpayers can use their income tax information to form the plan’s foundation.

First, you will need lists of assets and liabilities, copies of tax returns, insurance policies, wills, trusts and pension plans. This involves getting a handle on where you are in your financial life before you plan for where you want to be.

The second step in the financial planning process is identifying both financial and personal goals. The three objectives cited most often are security in retirement, providing for children’s education and developing an estate plan. While these are a little vague, they’re a start.

The third step is identifying problems that might prevent financial independence, such as too little or too much insurance, a high tax burden, inadequate cash flow or current investments that are losing money. It is important at this point to have a financial advisor assist in developing a plan.

A professional advisor can provide objectivity and expertise. It’s hard for people to be objective regarding their own finances, and most do not have the financial experience necessary to make wise decisions.

The fourth step is structuring a plan to meet financial needs and objectives, followed by implementation of agreed-upon recommendations. A financial advisor can help develop and implement the plan, but the decision to implement, modify or reject recommendations remains the individual’s ultimate responsibility. Many advisors provide a checklist to help clients implement their plans themselves.

A final, and often most important, step is periodically reviewing and revising the plan to account for changes in personal and economic conditions. The advisor and client can then review goals and problem areas and fine tune the plan as needed.

Be sure to check with your financial advisor how your tax return can serve as your starting point and progress report on achieving your financial planning goals.

     

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