4 Steps to Reaching Your Financial Success
4 Steps to Reaching Your Financial Success
Written by Christopher Nutt, (OnlyinPhiladelphia.com) – “Most successful people would not begin an important journey without first having a plan that identifies where they are going, how they will get there, and when they will arrive. Building a secure financial future is no different.
The journey to financial independence is a long road filled with opportunities, detours, and challenges. Having a plan that will take advantage of the opportunities and meet the challenges is crucial.” 1
There are four key financial planning steps that can help in keeping your financial future roadblock free and heading in the right direction.
Step 1 – Cash Reserve
Depending of your unique situation, your cash reserve should cover 3 to 6 months of living expenses. This would be cash in savings or checking accounts, CD‘s, or short term investments. An emergency fund to take care of short-term emergencies such as repairs to your home or automobile, so you don‘t need to rely on your Visa card.
Step 2 – Protection Planning
This is protecting your financial plan from unexpected events, and to provide for you and your loved ones in the face of uncertainty.
A sufficient insurance plans is often the most overlooked roadblock in people reaching their financial goals. Examples are adequate disability insurance, life insurance, and health insurance coverage. So if you were hurt and couldn’t work, you could still be able to continue your desired lifestyle.
Having a short term cash reserve and adequate protection plan is an essential part of your financial success. In comparison to a sturdy building, this would be your solid foundation.
Step 3 – Tax Planning
Taxes are an important consideration in any financial plan. Having a tax strategy that allows you to plan for tax controls, now and in the future is critical.
A good tax strategy minimizes your tax burden today, and takes into consideration how your decisions today will impact your tax situation in the future.
There are a number of tax adventitious savings vehicles that you can use.
401k’s and IRA’s -
-Allows you to save money before taxes are taken out.
-Investment growth tax deferred.
-Withdraws are taxed as ordinary income.
Roth 401k’s and Roth IRA’s
-Allows your own investment money after taxes have been taken out.
-Investment growth tax deferred.
-Withdraws are tax free.
Step 4 – Equity and Fixed Income Investments
Fixed income investments pay a certain fixed or floating amount on a set date. An example of this would be a bond, which is a company’s promise to repay the purchaser a prearranged payment(s) in the future.
Equity investments, such as stocks, mutual funds, and exchange traded funds allow you to participate in a company’s increase, or possible decrease in share value.
Diversification
Having a mix of bonds and equity investments in your retirement portfolio allows you to diversify your investment risk over a number of different companies and industries.
Your goal would be to have a optimal portfolio that maximizes investment return with a given amount of risk. This mix of bonds and equities will transition from growth to income as your retirement nears.
Bringing It All Together
Remember, the earlier you start saving, the more time your nest egg will have to grow. Automatic saving programs, such as deducting money every paycheck and automatically investing in a 401k or IRA, is an excellent way to start accumulating funds for your golden years.
Also, taking the time and actually writing down your financial goals and having a plan, is a good step to moving your financial future in the right direction. “Having the right financial plan with ongoing monitoring can mean the difference when it comes to realizing your future goals“. 2
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