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If you are behind on your payments and are battling creditors and collection agencies, a nonprofit like Consumer Credit Counseling Service of Orange County can help you put together a plan to reduce your secured (mortgage, auto, rent) and unsecured (credit card) debt.
If you are behind on your payments and are battling creditors and collection agencies, a nonprofit like Consumer Credit Counseling Service of Orange County can help you put together a plan to reduce your secured (mortgage, auto, rent) and unsecured (credit card) debt.
Joelle Casteix

It’s January and time to ask the most important money questions of the year: Is your overall financial plan working for or against you? Is your financial house in order?

For most people – especially young families struggling to make ends meet – financial planning is almost as exciting as a root canal.

But when it comes to your future and preparing for emergencies, even the smallest plan can protect you and your family.

A comprehensive financial plan – your financial “house” so to speak – goes beyond savings. There are other things to consider: debt management, life and long-term-care insurance, a will and trust, and, perhaps most important of all, determining who will raise your children if something happens to you.

Think of each of these as the “rooms” in your financial house. The stronger the walls, the longer your financial house will last for you and your family.

Pay yourself first

“It’s never too late and you’re never too young to put a financial plan in place,” said Lee Norton, a Tustin accredited asset management specialist with Edward Jones. Norton helps people at all stages of life plan for retirement, financial emergencies and college educations.

“You can painlessly put a plan in place that meets a family’s financial goals, whether that’s reducing debt, retirement savings or understanding other long-term needs,” he said.

When it comes to New Year’s savings resolutions, Norton said, the most important thing is to “pay yourself first.” That means taking full advantage of your company’s 401(k) – especially if your company offers matching funds.

“Since the money comes straight out of your paycheck, you don’t see it and don’t miss it,” he said. “It’s the easiest investment you can make.”

He also recommends investing in other retirement accounts monthly, before your money “evaporates” in bills, entertainment or other expenses.

“A good financial adviser will work with each individual and find what resources are there and what kinds of accounts are the best for that person,” he said.

Save for emergencies and retirement

Norton also recommends an emergency account. “We work closely with our clients to help them put aside three to six months in living expenses, in cash,” Norton said.

Financial troubles have a tendency to snowball, he said, and having a three- to six-month cash “cushion” can be a strong safety net for a family facing a job layoff, medical emergency, broken appliance or major car repairs.

When it comes to saving, Norton is quick to address the “retirement vs. college education for the kids” argument.

“It takes a lot of money to retire, and there is no financial aid,” he said. “Students have options. They can go to community college. They can work. They can get financial aid. They have choices.”

Retirement, he said, is a whole different ballgame.

“When it comes to retirement, there are no options. There’s only your savings. You have to have the money,” he said.

Putting together a retirement plan can be intimidating, but, Norton said, a good planner can work with you. Ask for referrals, do interviews and find a good fit.

“The younger you start and the longer you plan, the more power you have,” he said.

And if you think it’s too late, don’t worry.

“There’s no time like the present,” he said.

Make debt reduction a priority

But how do you balance saving for the future when you are struggling with credit card debt, student loan payments or other debts that seem to be spiraling out of control?

“It’s important to prioritize what you owe, know your credit score and have a plan to get out of debt,” said Natalie Lohrenz, director of counseling for Consumer Credit Counseling Service of Orange County, the area’s largest and oldest nonprofit credit-counseling center. The organization helps local families repay debt and regain control of their financial health.

If you are current on your monthly payments but carry debt that you want to reduce, Lohrenz has an easy solution: budgeting.

“When you sit down and make a budget, you become much more mindful about your spending,” she said. “So instead of buying a $5 coffee, you are more committed to using that money to pay down your credit card or student loan debt.”

If you are behind on your payments and are battling creditors and collection agencies, a nonprofit like Consumer Credit Counseling Service of Orange County can help you put together a plan to reduce your secured (mortgage, auto, rent) and unsecured (credit card) debt.

“Fortunately, most of our clients are able to be helped with budgeting, planning and counseling to catch up on their debt,” she said.

But what about the “big question”? Should people focus on paying down debt or saving for retirement?

“You are never going to make back on savings what you are losing in interest on your unsecured debt,” she said. Paying down debt should be a priority.

She does, however, agree with creating an emergency fund.

“Keeping three to six months in living expenses in cash can keep you from incurring more debt in case of an emergency.”

There are other ways to guard against emergencies that threaten your financial health.

Long-term-care insurance, which pays for things like in-home care, nursing homes and other long-term expenses related to aging or catastrophic injury, is an important consideration for anyone who is aging or has aging family members.

“Long-term care insurance is not only a benefit for the aging parent,” Norton said. “It’s for the caregiving kids who end up bearing the financial burden.”

Norton encourages anyone who may be facing these expenses to look into their insurance options.

Be prepared for tax time

Now that you have a savings and debt-management plan, how do you protect yourself from Tax Day surprises?

Orange County tax professional and certified public accountant Colleen Boyle Smith has been working for almost three decades with her father, CPA and attorney Bernard Boyle, helping local families and businesses with their taxes.

Her top tax recommendation? Planning. Whether it’s estate planning, knowing about and making your estimated tax payments or getting answers from your financial adviser, having a plan and acting on it is vital.

“You don’t want to have any big surprises on April 15,” she said.

The most common question she gets is the one she is most qualified to answer: What are the changes in the tax law? A good tax professional will be up to date on all of the laws that affect you and your tax status, she said.

Preparing for tax day in January is also a good idea, she said.

“Try and do a year-end tax projection now so you don’t have any big surprises in April,” Smith said. That means looking at your withholdings, estimated tax payments, income, capital gains and investment income in January, not on April 14.

Life insurance, wills and trusts

Like taxes, there is another inevitable fact of life: death. Life insurance, which pays a benefit if you die, is much more than just a financial payout.

“For families with young children, term life insurance is a must,” said Karianne Fenelli Welch of the Fenelli Law Firm in Laguna Hills, which specializes in wills, estates and asset protection.

“If you have minor children, it’s vital that you have life insurance in place that can take care of their financial needs until they are adults.”

Term life insurance, the most affordable option, will pay a certain amount when the insured person dies. The “term” of the insurance – the amount of time the policy is active – is usually 20 years.

The insurance can also help replace the income of the surviving spouse.

“If your husband or wife dies, you’re probably not going to want to go back to work the next day. You’ll need time,” Welch said. “Life insurance gives you a financial backup so that you and your children can focus on healing.”

Welch also recommends that parents work with a lawyer to finalize a will and guardianship for children in case both parents die before the children turn 18.

“Heaven forbid both you and your spouse die,” she said. “But if you are both gone, you want to be sure that your children are raised by adults you know, love and trust. If the court appoints someone, it may not be who you want.”

Welch also recommends that families look into establishing a trust. A trust is a legal document that spells out how assets are to be protected and allocated after your death. Any assets or property that you want included in that trust will become the property of the trust. It sounds complicated, but it’s a way to make sure that your will avoids probate and the courts are not forced to divide your assets when you die.

“If you own real property and assets that are worth more than $50,000, it’s a good idea to set up a trust to protect those assets in case you die,” she said.

The $50,000 amount includes virtually anyone in Orange County who owns a home.

“This isn’t about helping your children avoid estate taxes,” she said. “This is about making sure that your wishes are honored and that your children’s assets are protected, especially if they are minors when you die.”

Welch said that when it comes to writing a will, deciding guardianship and creating a trust, it’s important to talk to an attorney.

“A good attorney will not only make sure that you and your children are protected, but he or she will also check your ‘emotional quotient’ and make sure that your family, their needs and their futures are protected.”