Your Most Important Financial Planning Number

ImportantI recently read an article from a financial planner stating that net worth is your most important financial number. As a reminder, your net worth is what’s left over after you subtract your total liabilities (loans, debts, etc.) from your total assets (home, car, investments, etc.).

In fact, if you’re curious how your personal net worth stacks up against others in your age group, here’s a January, 2015, article from the Motley Fool that you may find interesting.

And while I think net worth is indeed an important number, I disagree that it’s your most important financial planning number.

I believe the most important personal finance number is your “MDI.”

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Avoiding IRA Account Penalties

Avoiding IRA Account PenaltiesMany people use Individual Retirement Accounts (IRAs) in an effort to minimize income taxes, both current and ongoing, while saving for retirement.

But IRA owners also need to understand and avoid another type of tax that can impact your IRA.

Excise taxes.

And here’s the kicker . . . these potential excise taxes are in addition to income taxes that you’ll already be paying to access funds from your IRA.

The important thing about IRAs is that you don’t want to take your money out too early or too late.

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Long-Term Care Costs and Your IRA Account

Long-Term Care Costs and Your IRA AccountAs you or your friends and family age, statistics indicate that an increasing number of people will have some sort of long-term care need. And it can be expensive. Very expensive.

There are some public health programs that were established to help in these situations, but they typically fall short of covering all that’s associated with a long-term care situation.

For those 65 and older, Medicare is available to pay medical bills. Medicare is a government health insurance program for seniors. If you’re not 65 years old but have been disabled for two years, you may also qualify for Medicare coverage.

But Medicare only pays a very limited benefit for long-term care. The maximum it will cover for the full cost of a nursing home is 20 days. It may cover partial costs for up to another 80 days, but in order to qualify for this coverage you have to meet certain, specific criteria both before and during your stay in a nursing home.

And even if you’re able to qualify for this Medicare long-term care coverage for up to 100 days, after that, you’re on your own.

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First Principles of Financial Planning

One way sign

“It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”

– Mark Twain

More than two millenia ago, Aristotle said that a first principle is the “first basis from which a thing is known” and that pursuing first principles is the key to doing any sort of systemic inquiry.

This is about getting down to the fundamentals. The basics. The most elemental aspects of what we know. And simultaneously, identifying what we don’t know.

This same concept is also captured in terms like a priori, axioms, and postulates.

From my perspective, this idea of first principles is about focusing on what we know to be true. The ideas, concepts and things that really aren’t up for discussion. Another important aspect of first principles, especially as it relates to financial planning, isn’t simply what we know, but also what we can influence or control.

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When Financial Planning Becomes Fun

Celebrate Your Financial IndependenceAs I’m writing this, it’s a Thursday morning. Two days ago, on Tuesday morning, I had a planning review meeting with a long-time client.

These clients are a happily married couple with two successful adult daughters. They were introduced to me by their CPA almost 10 years ago.

Let’s call them Mark & Mary.

Mark & Mary are wonderful clients. They work hard, but appreciate the restorative value of time away from work, and their family, both immediate and extended, are important to them.

And they’ve had a lot going on in their lives over the last couple of years.

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