Financial planning helps leverage job promotion
Client Challenge: Finances became too complicated to manage alone because of salary changes and other personal and professional responsibilities.
The KHC Approach
1. Clarify Goals
2. Build a Plan
3. Take action
Our client, Bob, was an associate attorney at a prestigious national firm for 7 years when he was named partner, a career move that significantly changed his income and had far-reaching implications on other financial and lifestyle needs. Bob and his wife, Mary, a school teacher, were busy raising their growing family, which included two daughters and a son with special needs.
Bob had never sought a financial planner before. He had always paid the bills, invested in his 401(k) plan and Mary’s pension plan and had a small account he would trade for fun. Once he became partner, Bob’s total income picture changed. Essentially, he had to build his own business, which meant longer work hours and increased responsibilities. Bob no longer received a monthly salary, he would now be paid twice a year, with the income amount uncertain. His finances had become too complicated to manage alone and he enlisted KHC Wealth Management to help guide him through this transition.
Led by KHC principal and director of wealth Management Jessi Sumner CFP®, the team assessed Bob’s new situation with KHC's three-pronged strategic process:
- Clarify goals
- Build a plan
- Take action
Clarifying Goals: To understand how Bob’s career change would affect both his family’s financial and personal goals, Bob and Mary began to outline their key objectives:
- What level of compensation would Bob need in order for Mary to quit her job and stay home with the children now that he’s working longer hours?
- How could he protect his family’s lifestyle and well-being should a disaster occur?
- What steps did he need to take in order to move to a larger home, save for children’s college and reach retirement goals?
Bob and Mary worked closely with Sumner and the team to determine the answers to these questions. The first priority was to get a handle on both the family’s new annual income and their monthly expenses.
Building the Plan: Working with Bob and Mary, the KHC team determined Bob’s monthly and annual expenses and outlined a cash management system to smooth monthly cash flow. Sumner and Bob analyzed the family’s insurance needs which included life, disability and property and casualty coverage. Together, KHC and Bob reviewed all programs to make sure they were meeting the family’s goals including confirming that life insurance and disability policies were adequate. It became clear that the family would benefit from a personal liability umbrella policy to protect their assets. They also determined that the family needed an estate plan. Finally, Bob wanted build a more detailed savings plan. He outlined his goals for education, long-term financial independence and retirement, and the purchase of a larger home for his growing family.
This exercise helped the couple set priorities and consider additional financial changes. They realized how important it was that Mary leave her job and determined the action steps to make this happen. They decided to delay a move to a bigger house and began saving for education funding at a reduced amount with a plan to increase in the future. Bob and Mary decided it was a higher priority to save for financial independence by age 65 than to move into a new home. Finally, KHC determined that Bob’s income change now made tax planning crucial. With his higher income he changed tax brackets and now has more deductions; so the team now provides tax planning strategies to Bob each year.
Taking Action: As a first step, KHC implemented a cash management system that deposited Bob’s annual partnership income distribution into a new account that pays into their checking account monthly. This smoothed the family’s cash flow by creating monthly “paychecks” to meet the family’s determined expenses. Sumner connected Bob with a trusted broker to get additional supplemental and life insurance per the team’s needs analysis. KHC connected Bob with resources, including an estate attorney who specialized in special needs’ savings. The team formalized and consolidated Bob’s investment policy and established custodial accounts for college funding.
We are happy to report that Bob and Mary realized their short-term dream - Mary terminated her employment at the school and now stays at home to be with her children. With KHC’s help, the couple determined her income was no longer required to meet the family’s needs. They are making progress toward their long-term goals and Bob no longer has to shoulder the family’s financial affairs alone, now that KHC is their partner.
Disclaimer: The above does not represent an actual client’s experience but rather is meant to provide an example of the firm’s process and methodology.