One thing we all share in common is our desire to achieve financial security. But what does this mean? For many people, financial security means saving a specific dollar amount – a magic number that will cushion the retirement years and provide peace of mind.
We posit a slightly different approach, where the root of financial security is not about a specific number but achieving financial independence – the ability to meet all foreseeable financial needs out of one’s own resources. In other words, financial security means being able to afford to retire, even if you choose to keep on working. Many fall short of this goal along the way, however. Of course, you want to be able to meet expected and unexpected financial demands alike – buying a home, educating the children, surviving disability or unemployment, or the death of a breadwinner – but without the right approach this can be a tough road.
The good news is you don’t have to be lucky to achieve financial security. It does require diligence and plenty of hard work though. As the below (witty) list shows, many different tasks are required to reach financial security. All are important, and each merits your attention. The earlier you begin, the easier financial security will be to reach. (We recommend sharing this list with younger generation family members.)
F | FORMULATING OBJECTIVES. You can’t get there from here, Mainers often say. That is, unless you establish some important personal financial planning objectives – guideposts for the near term and later on down the road. (These needn’t be set in stone but evaluated periodically.) |
I | INSURING THAT YOU HAVE ADEQUATE INSURANCE. Always maintain continuous and comprehensive insurance coverage. Policies should be assessed periodically and updated as your needs change. |
N | NEVER GIVE UP CONTROL OVER YOUR MONEY. You are your own best financial planner. Don’t let other people tell you what to do with your money before assuring that they have your best interests in mind. |
A | ALLOCATING YOUR INVESTMENTS APPROPRIATELY. Diversifying your monies and deciding how to apportion your investments among stocks, interest-earning securities, and real estate is crucial to your investment success. |
N | CREATING A NEST EGG. There’s nothing like money in the bank to give you financial peace of mind. Kick the spending habit and get hooked on saving regularly. |
C | COPING WITH MAJOR LIFE EVENTS. Life deals each of us a variety of cards – some are good, and some are not. Preparing for the unexpected helps minimize disruptions – financial or otherwise. |
I | INVESTING WISELY. Learning about how to invest and putting your knowledge, and savings, to work are two of the most important ingredients to your achieving financial security. |
A | ASSURING THAT YOU MINIMIZE INCOME TAXES. Income taxes take a large chunk out of your income, and there is no reason to pay any more than the minimum that the law obligates you to pay. Overpayment will not win you any prizes, but it will reduce your investible assets. |
L | LEARNING TO LIVE BENEATH YOUR MEANS. The only way to accumulate the investments necessary to achieve financial security is to spend less than you earn. The only way to spend less than you earn is to live beneath your means. |
S | SETTING YOUR RECORDS STRAIGHT. Organize your records and prepare personal financial statements to get a better handle on your finances. |
E | PLANNING YOUR ESTATE. You’ll not only be doing your heirs a big favor by preparing the necessary estate-planning documents, but you will also benefit during your own lifetime. |
C | MEETING COLLEGE EDUCATION COSTS. The best way to meet college education costs is to undertake a realistic savings plan when the kids are young, then become familiar with the financial aid processes as they near college age. |
U | USING CREDIT WISELY. Credit can be a powerful tool in achieving financial security, or it can destroy your financial security when abused. Use it wisely. |
R | PARTICIPATING IN RETIREMENT PLANS. Maximize your participation in tax-advantaged workplace retirement plans to help assure a comfortable retirement. Don’t forget IRA and ROTH contributions, which offer hefty tax benefits as well. |
I | INVESTING IN YOUR CAREER. Your career is your most important income-producing investment. Devote the time necessary to improve your skills and advance in your career. |
T | TAKING THE TIME TO ATTEND TO YOUR FINANCES. The time you spend to keep your personal financial house in order is always time well spent. |
Y | YOU’RE RESPONSIBLE FOR ACHIEVING FINANCIAL SECURITY. It’s up to you to take the actions necessary to achieve financial independence. |
Smart Money Tips
- Don’t fall prey to human nature. There’s an inherent danger in following the opinions of those who purport to know about the future of the economy, the investment markets, or any other condition, for that matter. The problem is that we tend to form our own opinions and then wait until we hear others state the same opinion. Once your own view is supported, you are convinced that the truth has been divined and take action. But, as you have probably found (or will discover), your actions may not reap the rewards you or your fellow opinion-sharers predicted. There is nothing that worries me more than people who are convinced that some future event is inevitable, whether it’s gold going to $8,000 an ounce, the social security system collapsing, or the stock market falling 80%. Could it happen? Sure, but it probably won’t, and you don’t want to bet your financial future on some outrageous forecast of an unprecedented event.
- Consolidate and clean up your investment accounts. Riding herd on your investments is tough enough without having more accounts than you need. Most of us have too many. So, combine your various accounts where appropriate. This includes rolling over any 401(k) and 403(b) plans from old employers into an IRA. You generally need only a traditional IRA account, rollover IRA (if applicable), and a single Roth IRA. The same applies to brokerage accounts and bank accounts. While you’re at it, request electronic delivery of statements and financial records to reduce trading costs and the paper clutter in your home.
Food for Thought
Worrying about the stock market 14 minutes a year is 12 minutes too many.
–Peter Lynch
Money Can Be Funny
There’s no money in poetry, but then there’s no poetry in money, either.
–Robert Graves
Word of the Week
tragematopolist (tra-geh-ma-TO-pohlis) – Someone who sells sweets or candies.
Origin: From the Greek tragymat meaning dried fruits, and –opolist meaning “one who sells.”
Willy Wonka is perhaps the world’s most famous tragematopolist.