They have been doing it for thousands of years, and it still fascinates us -- how jugglers manage to keep three, four, even five objects in the air at one time. When no one is looking, we may try it ourselves, using oranges or some other fruit. But we are quickly confused, and the fruit falls on the floor.
Financial planning is like juggling -- you usually have more than one goal in mind at any given time. Over the course of your whole life, you will probably need to get all five in the air.
These are the five oranges you want to juggle* Protecting Against Loss of Income
You want an alternate source of money to help keep you going in the event something some day prevents you from making the money you are making now. The "something" can be as expected as retirement, or as sudden as death or disability.
Most everyone is aware of the importance of some kind of life insurance plan. Disability is harder to grasp, because it can be anything which keeps us from doing what we do. A head injury, arthritis, carpal tunnel, Alzheimer's disease, a heart attack -- anything.
As for retirement, we forget that comfortable retirement is the exception -- not the rule. Increasingly, workers are being told they must accept more of the responsibility for retirement themselves. People without a retirement plan -- company pension, 401(k), IRA, annuities, etc. -- will find Social Security alone a tough life.
* Maintaining a Saving Habit
Be honest -- for many of us, saving isn't easy. We need a plan, and the discipline to stick to that plan. A good plan is flexible enough to allow you to stay liquid with some cash while regularly channeling other funds to places where you will not be tempted to spend it.
Everyone's different. Some of us respond to the carrot -- positive saving methods; others need the stick. Payroll deduction and automatic deposits are positive ways to strengthen the saving habit. Withdrawal penalties on instruments like IRAs and annuities are a negative way to do the same thing.
The great danger is when we think we are saving, but we keep spending what we save -- on vacations, cars, Christmas presents. True savings is long-term.
* Insulating Against Inflation
Saving in the face of inflation is like swimming upstream -- it fights us all the way. Lately the inflation figures have been low, but did you know that the government no longer includes rising auto and home costs in their inflation formula? Some experts say that 4% of official inflation may really be closer to 10% or even 12%.
Inflation forces us to make tough decisions. If we want our money to grow, we can't leave it all in a savings account. We have to seek out higher returns, within risk levels we can tolerate.
* Minimizing Taxes
Like inflation, taxes are always pulling at our efforts to grow. If you have $10,000 at 6% in a CD, at year's end you will have earned $600 -- and you will owe as much as $180 of that in state and federal taxes. We are saving not for the government but for ourselves and our families. Taxes are such an important factor that, oftentimes, you can make more money by avoiding taxes than you can by simply making more money -- especially if we are in the higher tax brackets.* Passing Wealth On
Ever wonder why, when someone dies, an estate sale is held? It's because the government expects heirs to make cash payments on inheritances within nine months of the death. Because the need to raise cash is great, prices are low -- nice for shoppers, but distressing to your family. Unless you plan carefully, you expose your loved ones -- and your property -- to a kind of legal ransacking.
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Five concerns -- five oranges. Seems tough? Well, so does juggling, until you realize that, in the juggler's mind, he is only touching one orange at a time. If you are young, estate planning isn't much of an issue yet, but avoiding tax and combating inflation are. The trick behind good financial planning is to consider each problem in turn, and create a strategy to address it. The way to succeed is by using techniques you have heard of many times --