Wealth management is a complex, nuanced, and holistic process, and it means much more than working towards financial goals and managing your income. A large component of wealth management involves planning for potential downfalls.
There are many scenarios in which poor financial planning combined with unexpected events impedes wealth management success in the long-term, some of them having nothing to do with financials at all! For example, sudden illness, significant life events, poor or out-of-date estate planning, and more. Lacking preparation and damage control for unforeseen circumstances within wealth management can create dire consequences. Here are the most common and costly wealth management mistakes that individuals make:
Lacking a Financial Plan
The core of wealth management is creating a financial plan, which is more complex than constructing financial goals that you would like to achieve in the long run. A financial plan is all-encompassing and includes the protection of the longevity of your financial goals. This includes protection of your current lifestyle, protection against running out of money, and protecting what you want to leave behind.
A financial plan consists of many components that provide you with a guideline for achieving your goals:
Understanding and documenting your goals and objectives
Assessing your net worth
Budgeting based on assets and expenses
Projecting retirement income
Including your tax strategy
Drafting legacy and estate plans
Assessing risk tolerance
Working with a trusted advisor to create the framework of wealth management, which is a financial plan, is the first step towards understanding all aspects of your current financial situation and how to comprehensively work towards your long-term goals.
Limited Tax Planning
Tax planning is an integral part of the success of your financial goals. This includes more than minimizing annual taxes but also lowering your overall lifetime tax bill. Proactive tax planning allows you to maximize wealth through minimizing taxes, reducing one of the largest expenses one can incur throughout their lifetime.
To avoid the costly effect of lacking a tax plan, incorporate an integrated tax strategy into your investment planning. This may include diversifying your assets across different tax buckets, such as tax-deferred accounts, like a 401k, or other tax-advantaged accounts, like a Roth IRA. Work with your trusted advisor to see what diversification options are best for your financial situation and long-term goals to optimize your tax rate.
Lack of or Outdated Estate Planning
This mistake is the hardest to correct because the consequences are most often incurred once it’s too late. By creating and keeping an estate plan up to date, you avoid your beneficiary having to clean up a mess after you’re gone.
Setting up a comprehensive estate plan and keeping it primed can allow you to avoid time-consuming and costly ramifications. Having an estate plan can help you avoid probate, which is the legal proceeding that analyzes and transfers the administration of estate assets after the owner is deceased. It also reduces estate, gift, and income taxes to those who acquire your estate.
Many think that having a Will is enough to plan for the future of your assets, which unfortunately is not the case. An estate plan is thorough and all-encompassing, including preparation for both incapacity and end of life, which creates financial protection against sudden illness, death, and significant life changes. While it may seem pessimistic, including planning for potential incapacity and death allows for your documents and affairs to be in order at any necessary time, which can avoid sudden expensive consequences for your family and beneficiaries. Estate planning ultimately protects the legacy of your wealth.
Truenorth Wealth Is Here to Help
Here at TrueNorth Wealth, our goal is to ensure you achieve yours. As one of the best financial planners in Utah, we offer fee-only holistic financial and retirement planning services that will work with your circumstance to find the most optimal way to accomplish financial security in the long run.
To learn more or schedule a no-cost consultation with our fee-only certified financial advisors, visit our website at TrueNorth Wealth or call (801) 316-1875.