Serious young couple planning budget over laptop at table. Young man and woman calculating monthly expenses at home. They are in casuals.

Annapolis, the state capital of Maryland, has a population of about 40,000 people and occupies a little more than 8 square miles. Just 25 miles south of Baltimore, it is the home of the U.S. Naval Academy, St. John’s College and ARC of the Central Chesapeake Region. As of 2017, the median age was 37.4 and the median income per household was $81,143.

Naturally, the city’s demographics and employment picture impact the distribution of wealth throughout the area. As is true all over the country, Annapolis residents who carefully plan their finances have better control of their current and future lifestyles.

Scarborough Capital Management is located in Annapolis, MD and has been helping busy professionals with their financial planning needs for more than 30 years. Because we believe financial planning can benefit anyone, we work with Millennials who are just getting started, professionals who are in the middle of their careers and pre-retirees who face important questions before deciding to leave the work world behind. While everyone’s situation, goals, concerns and needs are different, there are 8 chief components that a comprehensive financial plan should include.

Cash Flow

Your cash flow is the basis of your current lifestyle and your ability to plan your financial future. In essence, it’s your income and your expenses – the components of your monthly budget. All other aspects of your financial planning start here, and it’s at this step that discipline can make all the difference. Some important considerations in this category include:

  • Living within your means. That is, your cash inflows should be sufficient to pay your bills and save or invest for the future without racking up large amounts of debt.
  • Creating a monthly budget and tracking your spending against it. Staying on top of your cash flow is vital at any stage in life. Adjusting your budget over time will help you realistically reflect your spending patterns.
  • Creating a rainy-day fund with enough put aside to pay four to six months of expenses should you suddenly lose your income. This can happen for a number of reasons – downsizing or unexpected layoff, sickness or even a natural disaster, such as earthquake or mandatory shutdown.

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Health Insurance

Health insurance can be expensive, but it can help provide peace of mind and financial support should something happen to you. You may be covered by your employer, but that can be of questionable value, and you could lose your health insurance if you lose your job.

Your financial plan should encompass the premiums you need to pay and your potential out-of-pocket expenses if you need medical care. Insurance coverage and insurance plans can differ significantly. Some plans may require high deductibles, which reduce your premiums and your coverage. Health savings plans are also an important consideration. In any event, do not underestimate the potential financial devastation that can result from a serious illness or injury.

When considering insurance, discuss your options with a financial advisor you can trust, so you know you’re starting a policy that is in your best interest.

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Long-Term Planning

Your financial plans should also account for your important pre-retirement milestones and goals. All situations are unique, but common life events include:

  • Weddings (and honeymoons)
  • Birth of children
  • College
  • Home purchase
  • Career decisions

In addition, your long-term plans should include the things that you find important, whether it’s starting your own business, traveling, growing your wealth, etc. By financially planning for the long-term, you increase the likelihood of achieving the things that are important to you.

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Assets and Debt

Debt is not a dirty word, though it can become one if abused. Your financial plan should incorporate the responsible use of debt to help you achieve your goals, including the acquisition of important assets (your home, cars, other property, investments, etc.). When you use debt to leverage your wealth, you should evaluate:

  • The cost of the debt (interest, fees, prepayment penalties, etc.)
  • The repayment terms and your ability to repay
  • Collateral (if any)
  • Sources (credit cards, personal loans, mortgages/home equity loans, etc.)

Naturally, your financial plan should account for the major assets you wish to accumulate and how you will finance them. 

Your investment assets are an essential part of your long-term and retirement plans. A good financial advisor will help you assemble your investment portfolio based upon your age, tolerance for risk, need for diversification, required returns and several other factors. A carefully balanced investment plan can help you accumulate wealth, make rational decisions and keep ahead of inflation.

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Tax Planning

When it comes to taxes, the adage is that it’s not what you make, it’s what you keep. Tax planning can be important for many people, but it’s absolutely essential for those privileged by wealth. There are many tactical considerations, including:

  • The use of tax-sheltered income and investments that include your retirement accounts, annuities, cash-value life insurance, tax-free bonds, etc.
  • Investments that take advantage of long-term capital gains rates
  • The judicial use of tax-selling at year end, including carryforwards and carrybacks
  • The use of trusts and estate planning
  • The impact of state and local taxes
  • Offshore accounts, hedge funds, private equity, etc.

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Social Security

Social Security is an essential, but often insufficient, source of retirement income and should be fully accounted for in your budgets. While you can begin taking payments at age 62, the longer you postpone it (up to age 70), the more you can receive each month. That’s a tradeoff that you should evaluate well before you enter retirement.

It’s also important to understand Social Security benefits for surviving spouses and for the disabled. There are also tax considerations, depending upon your age and employment status.

Your Social Security benefits can be complicated, but understanding when and how to take them is an important decision. Before you retire, make sure you discuss your situation and your options with a financial advisor you trust, so you make the right decisions. 

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Retirement Planning

For many, retirement planning is the cornerstone of their overall financial plans. The goal is to fund a comfortable retirement without sacrificing too much of your current lifestyle. Your retirement plans should consider your projected income requirements and sources, such as Social Security, 401(k)s and IRAs, pensions, annuities, investment income, trusts, etc. Your planning should be realistic – many folks underestimate their cash needs once they retire. 

Realistically, many individuals are living longer. Some want to continue working into their 70s and beyond. Many people worry about whether they will outlive their money in retirement. Consulting with your financial advisor to develop a retirement plan well before your retirement date can be a game-changer. And remember, it’s never too early to start planning for your future. In fact, the more you can contribute to your retirement accounts when you are younger, the better positioned for retirement you’ll be.

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Everyone’s situation is different. Financial planning is not a one-size-fits-all process.

Your financial plan may include items like estate planning, charitable giving, revocable and irrevocable trusts, bequests and other important topics. The most important factor is to select a financial advisor who has the skill and expertise to address all of your issues in a holistic fashion. Due diligence up front will help you achieve your desired goals later on.

It’s also wise to work with an independent financial advisor who is familiar with where you live and where you plan to retire, because there may be local benefits that a large, brand-name firm may not be familiar with. Financial planning in Annapolis, MD is different than in other areas. Tax laws are different in different states, estate planning laws change and the cost of living is different depending on where you retire. Your location can be especially important if you plan to relocate in retirement, as you may need more – or less – money to live comfortably in retirement.

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Securities offered through Independent Financial Group, LLC (IFG). Member FINRA/SIPC. Advisory services offered through Scarborough Capital Management, a Registered Investment Adviser. IFG and Scarborough Capital Management are unaffiliated entities. IFG does not offer tax or legal advice.
This material is for informational purposes only, and is not intended as a substitute for individualized professional financial, tax or legal advice. Please consult a tax professional regarding your personal financial situation prior to investing, as individual circumstances vary.