What the NFL Draft can teach us about money
In the NFL Draft, teams hope to find strengths where they currently have weaknesses, replace veteran players with less expensive but talented young prospects, and ready their organizations for 2015 and beyond. It's not that different from your personal finances.
It’s the middle of April, and the 2015 NFL draft is quickly approaching.
This means aspiring professional football players have made their way to the NFL scouting combine, where talent evaluators have scrutinized their speed, strength and agility. General managers and coaches are burning the midnight oil looking at both their existing rosters and the young players hoping to fulfill a lifelong dream by being drafted into the NFL.
Teams hope to find strengths where they currently have weaknesses, replace expensive veteran players with less expensive but talented young prospects, and build the organization to capitalize on talents in 2015 and beyond.
It’s not too different from your personal finances.
We are nearly six years removed from the official end of the “Great Recession” that started in 2008. Job growth has rebounded to levels not seen since 2008, corporate profits have trended higher for quite some time, and many families across America are feeling pretty good about their current finances.
Whatever your situation, take some time to review your finances with a certified financial planner who can spot the holes on your roster. If there is a missing piece, it’s probably in one of these key positions:
Personal insurance (What does your defensive secondary look like?): This can be more classically defined as life, disability and long-term-care insurance. Are your policies right for you? Have your coverage needs changed? Are you over- or underinsured? Can you capitalize on the policies that you have, or do you need to rework the entire structure?
Liability insurance (Can your front seven handle the pressure?): Honestly, when was the last time you sat down with your personal liability insurance agent and talked about your coverage? Has your house appreciated, necessitating a coverage upgrade on your homeowner’s policy? And what about your umbrella policy — that additional layer of liability insurance that provides extra coverage on top of your homeowners and auto policies and can be thought of as your “prevent defense” against catastrophe. Is it the right policy for you?
Estate planning (Do your players match the coverage and scheme?): There are a number of things to talk about here. Digital assets, such as Facebook, LinkedIn, blogs, and other online accounts, are now being considered in the estate planning process for many clients. The estate tax is no longer a consideration for a large majority of Americans, rendering estate planning for tax minimization a non-issue for 99% of us. Advance directives and power-of-attorney documents should be refreshed for most people every three to five years.
Even though estate taxes no longer apply for most of us, it is still important to have a will so you can name a guardian for your children. You also determine to whom and how your assets will be distributed. What happens if you become incapacitated and can’t make financial or medical decisions on your own?
Investment planning (Do you know when to run, pass or take a knee?): Have you thought about what you’re going to do during the next recession? Will you become more aggressive, get conservative, or stay the same with your investment strategies? Will you move cash from your savings account into an investment account? If you are an individual equity buyer, have you started identifying a list of companies that you may want to own at a steep discount to today’s prices?
Tax planning (Do you have the right mindset in the locker room?): The Affordable Care Act and other recent laws have brought in a handful of new taxes for many clients. What impact are these having on you now that your portfolio is creating capital gains and income? Can you do anything to minimize the taxes while you are still getting bonuses and higher wages? Are there deductions to take today that may be more beneficial to you now than they would be in the future?
Charitable planning (Are you building goodwill in the community?): With equity markets at an all-time high, can you gift appreciated stock to a donor advised fund, which enables people to maximize the tax deduction during high-income years but distribute the money to the charities of your choice over a period of years? What about a private foundation or just giving outright to a charity? Have you considered becoming more focused in your giving efforts? Does your giving match your family mission?
Financial independence (Do you have your franchise quarterback already, or are you still in need of one?): How are you doing on your path to financial independence (retirement, college savings, second home, extra travel, etc.)? How will that be affected by a recession or layoff? Do you have credit card or college debt? How does that impact your long-term strategy to become financially independent?
Much as in football, where teams have different strategies for the draft based on whether they are a perennial contender or in rebuilding mode, our life stages define how we approach our financial planning. For example, most clients in their 80s don’t need life or disability insurance but need to make sure the estate documents are in good shape.
Look at your financial planner as the general manager or coach. Take the next couple of quarters and review your personal finances to determine where you need to “draft” well to be prepared for the next couple of years.
Build your empire — however big or small — to capitalize on your strengths much like NFL teams hope to do in the coming weeks. You may only be a player away from being great, or you may need two or three years to put it all together. But the great thing is we all have the chance to improve our position by making smart choices.
Learn more about William on NerdWallet’s Ask an Advisor.
The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.