10 Steps to Financial Success

 
What do you need to do before investing with a financial advisor?

In a recent video interview, Doug Adams (creator of the Dilbert) said that financial advisors should have a one-page set of instructions for people who are just starting on the path to building their asset base – something that would provide the basics of financial planning and instructions for anyone starting their journey toward financial independence.

What would that checklist look like? Personal finance is often about setting priorities – let’s start with the basics first.

1) Pay off your credit card debt. This may be the highest and safest return on your money. Check out sites like bankrate.com and look at credit cards that can enable you to consolidate debt at a lower interest rate. If you need more help, consider free resources such as the Consumer Credit Counseling Service.

2) Know your monthly budget. How much do you have each month in income? What are your monthly expenses?  There are some great expense tracking tools out there, such as Mint.com. Your income needs to be more than your outgo!

3) Build some cash reserves. Ideally, everyone should have 3-6 months worth of cash in a savings or money market account in case of emergency. If you need to rely on payday loans to make your rent or car payments, you may need to move somewhere less expensive, work longer hours, or find a job that pays more.

4) Get your profile on LinkedIN. Think of this as your online resume.The average job only lasts 3-4 years, so start planning for your next job before this one ends.

5) Pay yourself first by putting money into savings at the beginning of each month. If you wait until the end of each month, you might find that you don’t have any money left!

6) Get insured. In this order, you need car insurance (some states won’t register your car without it), renter’s or homeowner’s insurance, health insurance, disability insurance, and life insurance. Nothing can send you into bankruptcy faster than medical bills combined with a physical inability to work. Thankfully, with Obamacare, more people have access to health insurance than ever before.

7) Save for a home. If you have a stable situation and plan to live somewhere for at least 3-5 years, think about buying a home. If you are looking for a safer or better neighborhood, considering going onto Google Maps and looking for a location with more trees (this is simple, but it works!) You will need to figure out how much you can reasonably afford. Buying a home that is less than you can afford gives you some flexibility for improvements, furnishings, and to pay for life’s many surprises.

8) Contribute to your future retirement. If your employer has a qualified retirement plan, try to save at least 10%-15% of your monthly income, especially if you have completed steps 1-7. If you don’t have these benefits at work, set up an IRA account with a mutual fund company like Fidelity or Vanguard.  There are some big tax benefits here, but remember that this is money that you shouldn’t touch until you reach retirement age. If you are in your 20’s or 30’s, you can start by considering index funds that invest in stocks, or “lifecycle” funds that are rebalanced as your get closer to retirement.

9) Get your will written. This isn’t something you do for yourself, but for the people that you care about. Keep this in a safe place, along with copies of financial records and account passwords. Meet with a family lawyer in your state, or consider inexpensive software such as WillMaker.

10) Look for professional guidance. Now that you’ve completed the basics of financial fitness, it is time to get some coaching! Talk with friends and family to find out who they recommend for financial advice, and don’t be afraid to interview several advisors until you find someone that you trust and feel comfortable with. If you live in a metro area, GuideVine is also an excellent way to find a qualified financial advisor.
 
 

Post By: Jim Lee is the founder of Strategic Foresight Investments, a registered investment advisor.  Follow Jim on twitter @jhlinde or at www.stratfi.com. Information contained herein is for educational purposes only and is not to be considered as investment advice or a recommendation to buy or sell any security.