SWOT - Strategic Tax Planners LLC

(SWOT) - Strength, Weaknesses, Opportunities & Threats Analysis.

If I were to tell you that you can apply the same strategic planning tool used by the world’s most successful corporations to your most important money goals, would you be interested? Well, you can, and whether it’s paying down a pile of debt, building an emergency fund, or planning for early retirement, you’ve come to the right place!

The tool I’m referring to is the SWOT analysis, which is actually an acronym for Strengths, Weaknesses, Opportunities and Threats. And in this post, I’ll show you how to apply it to your personal finances.

SWOT Analysis –

Simple and Effective!

Determining a financial objective or goal is the easy part for most people. What’s more difficult is coming up with a winning plan that will get them to the finish line. That’s the beauty of the the SWOT Analysis. It’s incredibly simple to use, yet highly effective.

FIRST THINGS FIRST

With any SWOT, it’s best to start by deciding on a financial goal(s).

Your goals can be to retire early, put your 3 children through College, buy a new house or simply travel the world. Whatever your goals a SWOT analysis will help you get there.

You will use the SWOT analysis to identify the characteristics that could either help or hinder your ability to reach your goal(s).

Let’s take a look at the makeup of the SWOT in its most basic form. Notice that there are 4 components: Strengths, Weaknesses, Opportunities, and Threats.

These factors will come to life as you consider characteristics that are related to each one.

But first, let’s take a closer look. As you’ll see in the more detailed diagram below, the four categories are not entirely independent of each other, with some level of connection occurring between them.

POSITIVE & NEGATIVE FACTORS

Strengths and Opportunities are both positive factors, characteristics that will help you achieve your goals.

Weaknesses and Threats are considered to be negative factors, which could potentially hinder your progress.

INTERNAL & EXTERNAL FACTORS

Strengths and Weaknesses are internal factors. These are the personal characteristics you possess that will influence your outcome in either direction. Let’s say, for example, that you are a young lawyer, and your financial goal is to save $50,000 over the next two years for the downpayment on a house. Your high income earning potential would be considered a personal strength, something you possess that will make it easier to reach your goal.

Opportunities and Threats are external factors. These are environmental elements that you could either use to your advantage, or could turn against you as you implement your financial plan. These tend to be outside of your control.

Here’s an example of a threat. If your financial goal is to pay your mortgage off 10 years ahead of schedule, a rising interest rate environment would threaten your ability to do just that.

Now that you have an understanding of the 4 components of the SWOT Analysis, the best way to demonstrate its usefulness is to see it in action. This is where things get interesting!

To do this, I’ve created the following case study. I’m going to provide you with some background on a typical young family. I’ll provide you with some details of their lifestyle and financial situation, without going into too much detail. I’ll also provide you with a financial goal for this family, and we’ll use the information provided to draft a SWOT analysis.

PERSONAL FINANCE SWOT CASE STUDY: THE THOMPSON FAMILY

Meet Matt and Sarah Thompson. Matt and Sarah are both thirty two years old. They’ve been married for four years, and have a beautiful 2 year old daughter named Abigail. They own their own home, which Sarah purchased a couple of years before she and Matt met. Matt is an elementary school teacher, while Sarah has been a stay at home mom since Abigail was born. Prior to that she worked full time as a health care aide at an old folks home in their community. In their spare time, Matt enjoys woodworking, a skill he learned from his father while he was growing up. Sarah is a runner and manages to find time a few days a week to jog to stay in shape for her energic toddler.

Matt and Sarah consider themselves blessed. They have a healthy marriage, a strong support system of family and friends, and what they consider to be a great life. But they do have some concerns about their financial situation.

More specifically, they’ve accumulated a large amount of consumer debt since they were married 4 years ago. This worries them, as they are finding it near impossible to pay it down while living on a single income. Their home is modest and the mortgage is relatively small, with $125,000 remaining. While housing values have risen somewhat since Sarah purchased it 4 years ago, it’s a starter home and is not centrally located, which has limited its appreciation.

Their consumer debt accumulated over time. When they got married, Matt had student loans of $30,000 that he had just begun to pay off. He’s since paid down the balance to $20,000, but it seems as though it’s only getting harder. When Abigail was born, they decided to sell their 10 year old Honda Civic, and purchase a new Dodge Caravan. In doing so, they took out a car loan for $28,000. What seemed like a reasonable decision at the time has really made budgeting difficult. The payments have limited their cash flow, not to mention their ability to save. They’ve given thought to selling the van, but its value has already fallen to $16,000, while they still owe over $20,000 on the loan.

Last summer, they noticed a leak in their roof after a powerful thunderstorm. They felt as though they had no choice but to replace the shingles immediately. Because it was a large expense they weren’t prepared for, they had to use their credit card to cover the $4000 bill. The balance is still on the card, and they’ve only been making minimum payments.

This experience made them realize that they were not well equipped to handle financial emergencies that can arise.

Since then, they’ve wondered how on earth they can pay down all this debt, and also set aside enough money to deal with emergencies.

To be clear, for the most part, Matt and Sarah have been responsible with their money. They live in a modest home, don’t overspend on things like eating out, or entertainment, yet they are in a tough financial position. They know what they want to get rid of their consumer debt, and establish an emergency savings fund, but they really don’t know where to start.

Does this sound familiar?

Thankfully, Matt and Sarah have learned about using a SWOT analysis to develop an effective financial plan, and they’ve decided to call STRATEGIC TAX PLANNERS to give it a try.

Here is the SWOT Analysis prepared exclusively for the Thompsons.

THE SWOT ANALYSIS

Strengths

Matt’s job & income stability. Salary should steadily increase.
Matt has work pension, but also contributes to retirement savings.
Modest equity in home (50K)
woodworking/carpentry skills (Matt)
personal health (ability to work and earn income)
Sarah has bookkeeping experience from a previous job.

Weaknesses

current cashflow is poor.
Interest rate on credit card is very high, 19.99%
vehicle amortization has 5 years remaining
both Matt & Sarah feel as though they lack investment knowledge
vehicle depreciation. Owe more than van is worth.

Opportunities

time (Matt has summer months off, capacity to take on a side gig.)
Strong credit scores (may help with favorable lending conditions if consolidating)
Family support. Parents are available and willing to watch Abigail part time if needed, at no cost.
Strategic Tax Planners will help them set up an investment account based on their risk tolerance.
Matt has a strong benefits package through his work.

Threats

With an older home, other expensive repairs may arise.
Plan to have another child in the coming year. Will impact future income earning potential.
Mortgage matures in 12 months. If interest rates rise, payments may increase also.
Both Matt and Sarah have minimal life insurance coverage.

The SWOT is complete now let’s work on solutions for the weaknesses, opportunities and threats using the Thompson’s strengths.

In the case of Matt and Sarah, they realized that their lack of investment knowledge may be a weakness. They weren’t confident in their ability to create an effective savings strategy for an emergency fund.

This is an example of how identifying and utilizing an opportunity can reduce a weakness!

Here’s another thing Matt and Sarah discovered. They want to be aggressive to reduce their debt. While their primary employment income won’t increase dramatically over the next few years, they identified additional skill sets that they both have, namely carpentry and bookkeeping.

They also realized that they have some flexibility with their schedules. Being a teacher, Matt has the summer months off from work. Sarah is a busy stay at home mom, but does have some flexibility in her day. Also, her parents live nearby and love the opportunity to spend time with Abigail any chance they get.

Matt and Sarah did some brainstorming and decided that they can use these strengths and opportunities to increase their income significantly, through side hustles. Had they not gone through the SWOT together, these are things they may not have given thought to.

As a result, Matt plans to take on carpentry projects during the summer months, like building decks or fences. Sarah, in the meantime, is planning to put her previous bookkeeping experience to work by offering her services to a couple of small businesses in the neighborhood.

With the SWOT completed, the Thompsons worked together with STRATEGIC TAX PLANNERS to create actionable SMART goals, and set out on their path towards debt freedom and a life of savings.

Just substitute the Thompsons for your family and STRATEGIC TAX PLANNERS will help you on the way to meet your financial goals.