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Financial goal planning

February 27, 2002

Last week left investors reaching for the nearest bottle of Pepto-Bismol. The market swung back and forth between fears of more accounting scandals and the hope of an economic recovery. Early Monday morning the Dow Jones Industrials have gone above the elusive 10,000 mark.

Investors should focus on companies in industry leadership positions or that are moving toward leadership positions. We like companies that have not moved too far in the current cycle yet seem to be enjoying improving fundamental prospects. There are a number of quality companies that appear on our most recent screening list. Some of the names include: General Electric*, United Parcel Service, Exxon Mobil*, Caterpillar, Coco-Cola*, Philip Morris, Fannie Mae, Merck, Johnson & Johnson*, Oracle* and Texas Instruments*. These names seem to represent higher quality companies currently sought by investors in today’s market.

Financial goal planning is a process that should be considered no matter what the market is doing. The beginning of the year is a great time to review the progress of your goals from last year and set new goals for the coming year. Having clear, written goals for all areas of your life can help you design and create the life you desire. You will achieve your financial goals more rapidly if you know what is important to you about your money and how you would envision your financial future. In addition, being aware and involved in your financial life means a financial future that is more secure and better aligned with your vision. Here are some suggestions for various financial issues and areas to consider.

Clean up financial messes. Is there something relating to your finances you have been procrastinating taking care of? Some project or difficult situation you are avoiding? Maybe it’s a tax return that hasn’t been filed yet or an enormous pile of statements that needs to be reviewed and filed. Possibly you have medical claims or business expenses that haven’t been reimbursed because you haven’t filed the proper forms. Have you been putting off getting your estate plan completed? We all know what these areas are for ourselves. These unresolved issues are like huge vacuums sucking up our energy. Take care of your financial messes and do it soon. You will be amazed at the amount of creative energy this will free up for you to use in more productive areas of your financial life.

Retirement Planning. Are you still on track for your retirement goal? The year 2001 was, to say the least, a difficult year for most investors. Depending on how your portfolio has been invested, and how severe a decline your investments suffered, you may need to adjust your retirement goals. It is important to be very specific about when you desire to retire and with what type of lifestyle. The clearer you are the better your projections will be. In addition, clarity in your retirement goals will set into motion the actions necessary to bring about their accomplishment. I have seen people create new income opportunities and save more money than they thought possible just by setting specific retirement goals and knowing what it takes to reach them.

Education Planning. Is it a goal of yours to pay for some or all of the cost of college for your children? Do you envision paying for a private school? Public school? Community college? How many years? Once your goals are defined, you can run projections for the future costs and determine how much you need to begin saving. The next step is to decide what type of vehicle is best suited for your needs. You may want to consider using the 529 saving plans. These are state sponsored savings plans that allow you to invest money in investment vehicles with varying amounts of risk. If these funds are then used to pay for qualified higher education costs, under the current tax laws, the money can be withdrawn on a tax-exempt basis.  To learn more about these plans and to review the plans offered by various states visit www.savingforcollege.com. This web site is the most complete I have found. There can also be state tax deductions associated with your college savings.

Tax planning. The beginning of the year is a great time to start planning your taxes. Thinking of ways to reduce your tax burden all year long is much better than waiting until next December. Starting in 2002 the annual limits for 401(k) and IRA contributions increase. In addition, if you are age 50 or older, you can contribute even more to these plans. Tax advantaged savings is a great way to move closer to your retirement goal, and also enlist the government’s help by cutting your tax bill. For most everyone it makes sense to contribute to retirement plans, such as 401(k) savings plans, and to contribute the maximum allowed. The mistake many people make is to only contribute up to the level in which the company will match contributions. A better strategy is to contribute the maximum permitted by the plan. The IRS maximum for 2002 is $11,000 ($12,000 if you are age 50 or older). As always, I suggest you consult your tax advisor.

Goal setting is exciting and energizing. It is a wonderful way to create what you want in life. Take the time now at the beginning of the year to look at your financial goals, write them down and enjoy the process of seeing them come to fruition in your life!

 * The analyst owns shares in this company.    

Nancy Hadley is an Investment Representative with D.A. Davidson in downtown Sandpoint.


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Nancy Hadley

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