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Your Bank > Education and Advice > CNB University

Getting Fiscally Fit

James P. Terwilliger
James P. Terwilliger, PhD, CFP® is Senior Vice President - Group Manager, Financial Planning Strategies and can be reached at JTerwilliger@CNBank.com or (585) 419-0670 x50630.

A successful professional career demands constant attention to updating one's skills and knowledge. Maintaining financial wellness demands similar attention.

Financial health is not about wealth. It is about

  • articulating your financial needs and goals
  • understanding where you are today
  • developing and following a plan to achieve your goals
  • protecting your plan with appropriate choices of savings rates, insurance and estate planning strategies

Attaining and maintaining financial wellness is an ongoing journey, not a one-time exercise.

Simple? No. Doable? Yes. Critically important? Yes.

Some of the elements include:

Live below your means. Believe it or not, this can be just as difficult for "wealthy" folks as it is for the rest of us. The concept is simple. Make saving a priority and pay yourself first. Make helping others a priority through charitable giving. Learn to live on the remainder. Doing this requires focus, discipline, and priority setting.

Prepare for retirement. Lifetime company pensions are becoming extinct. With the exception of Social Security benefits, a large portion of retirement income will come from accumulated savings. It is key that everyone understands the level of accumulated wealth necessary to support a desired lifestyle for some thirty or more years of retirement.

A rough rule of thumb is that a retirement nest egg is likely to last a lifetime if no more than 4% is withdrawn the first year, allowing for future years’ withdrawals to index upward with inflation. A nest egg of $1 million would allow for a "safe" first-year withdrawal of $40,000. Sobering, isn’t it?

Review and update your insurance. One primary purpose of insurance is to protect your plan in the event that an unexpected, financially-catastrophic event confronts you or your family. To do so, the level of coverage must be consistent with your needs and goals. Excepting permanent life insurance, we all hope that a claim never has to be made.

In addition to the standard life, auto, and homeowner’s insurance protection most of us carry, disability, umbrella liability, and long-term care insurance protection are becoming increasing more important. Sure, it is painful to pay the premiums. But consider the potential consequences of not being covered. If one insures for catastrophic (not inconvenient) losses, shops good insurers for price and service, and consolidates insurance with a single company, premium costs can be minimized.

Review and update your estate plan. Most wills are out of date or, for many people, do not even exist. Ongoing changes in estate tax laws and changing life conditions have made the need for updating wills a priority. Again, the purpose for doing so is to protect your plan. A good plan will survive you, providing for your family and other important people or institutions in your life.

Associated activities include updating your healthcare proxy, living will, durable power of attorney, and life insurance and retirement plan beneficiaries. All need to be consistent with your will and with the estate plans of family members.

Attack credit card debt. Wipe your credit-card slate clean. Add up how much you owe and create a plan for paying off your debt over time, starting with the card with the highest interest rate. Call each of your card issuers to try to negotiate a lower rate or work with a reputable consolidation organization, such as the Consumer Credit Counseling Service of Rochester, Inc. Going forward, resolve to make all purchases with cash, a debit card, or a credit card which you will pay in full monthly to ensure that you spend only what you can afford.

Make tax planning a year-round activity. While some tax-saving activities can be executed at year-end, most require ongoing planning and implementation. Examples include offsetting investment gains with losses; shifting income; restructuring debt to take advantage of tax-favored borrowing; contributing to a tax-deferred retirement plan; utilizing tax breaks from long-term care insurance premiums and 529 College Savings Plans; and optimizing the timing of distributions from tax-deferred retirement plans vs. taxable investment accounts.

Start now. Financial wellness does not just happen. Take action now to make it happen.

James Terwilliger, CERTIFIED FINANCIAL PLANNER™, is Vice President, Financial Planning, Wealth Strategies Group, Canandaigua National Bank & Trust Company. He can be reached at 585-419-0670-50630 or by email at jterwilliger@cnbank.com. This article previously appeared in Business Strategies Magazine.