With all of the financial advice that we give here on our blog one of the questions that we receive the most is this: ”Where do I start?” most financial advisors want you to start with the basics like savings and investing and those are good places to start but there are also a number of other steps that you should make when it comes to your financial life. With that in mind, we’ve put together a list of some of the best simple steps available to get started. Enjoy.
- Review your personal insurance. What you want to make sure is that you have sufficient life insurance to replace your income as well as take care of your family should the worst case scenario happen. It’s also a good idea to take a look at your mortgage debt, any special needs that you have and even college funding. Disability insurance is worth considering as the unexpected costs that come with a disability can be quite ruinous financially. Rather than using a company plan with its taxable income, by insurance personally and definitely consider purchasing what’s called an umbrella policy that will cover you in case of accidents or lawsuits.
- Review your business insurance. Take a look at whether your business has key man policies that will take care of replacing anyone who is a major contributor. Also, take a look at what type of insurance you have set up to cover you in the event that an owner dies or is disabled. (If you don’t think this is important, just imagine what it would be like having to deal with your partner’s family or children if they were out of the picture.)
- Make sure that all of your assets are titled in accordance with any estate plan that you have. If you want to avoid the high costs and stress of probate court, you may also wish to take a look at trusts if you have property or businesses that are owned in multiple states.
- Pay yourself first. Any financial advisor worth their weight will tell you that you should fund your retirement fully. The fact is, compound interest, tax savings and tax deferral will save you hundreds of thousands of dollars and, if your employee matches your 401K contributions, those extra dollars could end up becoming a considerable amount of retirement dollars.
- As interest rates are at historical lows, now is the time to lock in rates on long-term debt. It’s best to avoid floating rate debts on mortgages, home equity credit lines, credit cards and most personal loans and, although you’ll pay a slightly higher fixed rate, it makes sense in order to lock in an excellent right now.
- Take a look at your investment risk and make changes where necessary. This includes avoiding long-term, high-quality bonds if rates happen to be rising, having less than 5% of your portfolio in one single holding and shooting for lower but safer returns. Simply put, a high risk portfolio could very well become a big loss portfolio quite easily.
- Rather than waiting until you pass away, give now. There are many people who have plans to leave large sums of money to charities, schools and other organizations. While this is not a bad thing per se, it would be better to declare said gift while you are alive and use it to gain tax benefits, another income stream and also the satisfaction of giving.
- Involve your family, especially your spouse, in your financial planning. In many cases when a spouse passes away their surviving family is left with quite a mess and loses a lot of money because of it. Involving your spouse as well as your adult children in the process will cut down on the stress and the losses as well as possibly bring you closer to your family.
- Make sure that you have enough liquid assets on hand to whether an economic downturn or bad market. Most experts will tell you that having between 6 and 12 months of living expenses in a liquid emergency account is best.
- Create a budget, learn how to use it and stick to it.
- Live below your means, spend frugally and save as much as possible.
- Educate yourself about investing, savings and taxes so that you don’t have to completely rely on the opinions or advice of others.
We hope that these 12 steps have given you some insight and a place to start as far as your finances are concerned. If you have questions, need advice or have any comments, please let us know and we’ll get back to you ASAP.