Spring Cleaning Your Financial Plan with a SWOT Analysis

I’m sure the first thing you think when you see this title is that I spelled SWOT wrong (as in SWAT team). For financial planning purposes, I actually got it right as it stands for Strengths, Weaknesses, Opportunities, and Threats. Whenever I meet someone who needs  financial  planning help, I compose my SWOT analysis to get a one page summary on what they  need to focus on. My preference is to just have bullet points to come back to, not a lot of specific details. The hard part begins when I ask people to prioritize what they think are the most important items to start on. I use these 6 categories to put things in perspective:

1. Debt management-how much money are you borrowing based on your income and your net worth?
2. Savings plan-are you saving enough in order to accomplish your goals?
3. Risk management-how much insurance do you need when catastrophes hit (i.e. life insurance, disability, auto, health, liability, homeowner’s insurance) to make sure that they don’t bankrupt you or your family?
4. Estate planning-you need to have a will if you die, a durable power of attorney if you’re out of the country or  incapacitated, a living will or health care proxy to make life or death decisions. More complicated strategies include gifting assets or even setting up trusts.
5. Tax planning-is there a way that I can pay Uncle Sam less?
6. Investment planning and asset allocation-do you know if you are diversified enough and do you have a systematic way to determine when to buy and sell your investments?

A very simple way of prioritizing your SWOT analysis is to take the six items above and rank them from 1-6 in terms of what you need to work on most. I call this the six-pack approach; where your thirst is already quenched versus where you need to partake more in.

If you want a little bit more in-depth analysis, then a typical SWOT would look like this:

Strengths

• you have a solid income by earning over $120,000 a year jointly  
• your job security looks solid as you have been working with the organization for 20 years
• your only debt is in your home and you own 60% of the equity in your house
• you have adequate life insurance so if something happened to you, your family would be well taken care of

Weaknesses

• you don’t have  disability insurance if you were to get hurt on the job
• your liquid net worth is less than $40,000
• you’re only putting 3% into your 401(k) plan
• you have three children, but no estate plan or will
• your investment portfolio only has three mutual funds with similar styles

Opportunities

• you can refinance your mortgage payments and save money because of your high current interest-rate
• if you took one year evening studies, you could increase your income by $10,000 a year
• if your spouse takes that job at a university, you may be able to have your children’s education totally paid for
• if you take the recent job offer and move, you would earn more money and the cost of living would be dramatically smaller
• by getting a better quote on your life insurance, you can use the savings to purchase disability insurance

Threats

• if you don’t start saving soon for college, your children will have to take on a very large debt burden
• you are running a small business, but have not consulted an accountant to see if your deductions are proper
• you have no investment discipline or policies to determine your investment strategy
• you have very little liability insurance on your car and home if something happened and you were  sued
• you do not have a will or durable power of attorney for health care proxy

What I am going to list for you next is my favorite checklist to get a comprehensive SWOT list put together. I use this same checklist when I first sit down with people. If you want to give yourself a step up on your spring cleaning, then print this out and use it yourself or give it to a friend who needs to get their financial act together.

1. Debt Management:                           Date Reviewed: ____________

1. Mortgage term, rate, amount:
2. 2^nd Mortgage term, rate, amount:
3. Equity Line term, rate, amount:
4. Education loan term, rate, amount:
5. Car loan term, rate, amount:
6. Credit Card term, rate, amount:
7. Other:
8. Other: 

 2. Savings Plan:                                       Date Reviewed: ____________

1. Amount contributing to employer retirement plan:
2. Employer matching contribution:
3. Other employer sponsored plans:
4. Amount of additional savings:
5. Education Savings:
6. Contributions to IRA & ROTH IRAs:
7. Savings towards specific goals:
8. Amount in Emergency Fund:
9. Gifting Strategy:
10. Current Income:
11. Amount of Social Security:
12. Total Expenses:

3. Risk Management                             Date Reviewed: ____________

1. Whole Life Policies:
2. Term Policies:
3. VA Life Policies:
4. Amount of Disability Insurance:
5. Amount of Long Term Care:
6. Do you have aHomestead election on home:
7. Do you have access to equity line:
8. Homeowners Insurance-Do you have Umbrella policy:
9. Travel Insurance:
10. Buy Sell Agreement on business:

 4. Estate Planning                                 Date Reviewed: ____________

1. Will last updated:
2. Durable Power of Attorney:
3. Health Care Proxy:
4. Do you have Trusts/are they properly funded:
5. Current gifting Strategy:
6. Is your estate tax efficient:
7. Are assets titled correctly:
8. Beneficiary Review last completed:

5. Tax Planning                                        Date Reviewed: ____________

1. Tax Return last reviewed:
2. Any expected changes in tax status:
3. Is all cost basis updated:
4. Your current marginal tax bracket:
5. Your current average tax bracket:

 6: Investment Planning                   Date Reviewed: ____________

1. Last time Employer Retirement Plans reviewed:
2. Last time annuities reviewed:
3. Last time 529 plans reviewed:
4. Last time your personal portfolio was reviewed:
5. Do you have an Investment Policy Statement?

As you can see, there are a lot of working parts when it comes to spring cleaning your financial plan. This checklist is a great place to start, as hopefully spring’s optimism and energy will take over your winter hibernation and start cleaning out the cobwebs of your financial plan. Most of the things I talked about are big picture plans in making sure that you have all the right pieces in all the right places. Now it’s up to you to get the list prioritized and completed!

The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Securities offered through LPL Financial – Member FINRA/SIPC

Dave Caruso, CFP®
Certified Financial Planner™
Coastal Capital Group
Danvers, MA