Avoid Financial Surprises: Key Tips for Small Business Owners
Surprises can make our birthdays memorable, but financial surprises are rarely cause for celebration. Unexpected financial challenges can range from minor inconveniences to significant threats that impact your business and personal security. This blog post will explore the most common financial surprises small business owners encounter and how to prepare for them to safeguard your wealth.
Retirement Surprises
1. Higher-than-Expected Taxes Many retirees anticipate a lower tax bracket once they stop working. However, various sources of retirement income—Social Security benefits, pensions, deferred compensation, and retirement account withdrawals—can add up, potentially leaving you in a higher tax bracket. To avoid this, carefully monitor all your income streams and tax brackets. Converting tax-deferred accounts to those that allow for tax-free retirement withdrawals can also minimize your tax burden.
2. Longer-than-Expected Life While living a long life should be celebrated, it can be a financial burden if you outlive your retirement savings. Advances in medicine and healthcare are making longer lifespans increasingly common. Estimating a conservative lifespan in your financial plan is crucial to ensuring you don’t run out of savings.
3. Bigger Personal Expenses Many pre-retirees expect their expenses to drop significantly post-retirement, but
this is often not the case. Expenses can remain high due to inflation or lifestyle choices, resulting in higher-than-anticipated cash outflows. Make sure your retirement plan accounts for various inflation scenarios, and don't count on drastically reduced expenses.
Life Happens Surprises
1. Overlooked Payments Forgetting a payment might not seem like a big deal, but late fees can add up and impact your credit score. Set up automated bill reminders or recurring payments to avoid overlooked obligations. Account alerts via email or text can also keep you informed about upcoming due dates.
2. Home Repairs Natural disasters, accidents, or deferred maintenance can lead to substantial home repair costs. Ensure your emergency fund is well-stocked and that your homeowner's insurance covers all possible risks. If you have multiple homes, carefully review the policies for each to ensure comprehensive coverage.
3. Lawsuits Affluent individuals, including small business owners, can be prime targets for lawsuits. Protect your assets through proactive asset protection planning, which involves setting up legal structures that can safeguard your wealth. Remember that these plans need to be established before any legal issues arise.
Conclusion
Financial surprises can disrupt your business and personal finances, but they are manageable with proactive planning. Regularly reviewing your financial plan, insurance policies, and emergency fund can keep you prepared for life's uncertainties. Consider stress-testing your plan to see how different scenarios might impact your financial future.
At DAMI, we help small business owners protect their wealth by building comprehensive, customized financial plans that address life's surprises.
Contact us today to start stress-testing your plan and secure a more predictable future.
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Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.