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Ten Steps Toward Financial Security

By Jane Young, CFP, EA 

A common attribute that most financially secure individuals share is spending time working on their personal finances.  If you are ready to invest in your financial future, use the following checklist to address the issues most impactful to your financial security.

1. Set Goals: Set financial goals on what you would like to accomplish with your money.  This may include purchasing a home, landscaping, a special vacation, a comfortable retirement or assisting children with college tuition.

2. Identify Your Current Net Worth: Calculate the total value of your assets less debts to understand your current net worth. Monitor progress toward your goals on an annual basis.

3. Create a Budget: Develop a spending plan well below your income that enables you to save at least 15% of your gross income.  If your current expenses do not allow for adequate savings, look for creative ways to tighten your belt. 

4. Maintain an Emergency Fund: Create and maintain an emergency fund of at least 4 months of expenses.  If your source of income is unpredictable increase this to 6 months of expenses.

5. Pay Yourself First: Establish an automatic savings and investment plan to pull money from your checking account to create your emergency fund, save for a new home or invest for retirement.  Put this money away before you are tempted to spend it on non-essential items.  

6. Manage Your Debt: Do not charge something that you cannot afford.  Pay your credit card bills in full every month.  If you have credit card or personal debt, establish a plan to pay it off as soon as possible.  Try to purchase used vehicles with cash.  Most people need to carry a mortgage on their home.  Make sure the interest rate on your mortgage is reasonable and strive to be mortgage free near the time you plan to retire.  

7. Establish and stick to an Investment Plan: Arrive at a reasonable asset allocation based on your time frame and risk tolerance.  Invest your portfolio in low-cost mutual funds and CDs in accordance with this allocation and rebalance once a year.  

8. Adequate Insurance: Maintain adequate health, property and casualty, and disability insurance to meet your situation.   Do a full insurance review every 3 years.   If you have a significant net worth you should carry additional liability insurance in the form of an umbrella policy and if others are dependent on your income you may need term life insurance.

9. Estate Plan: Maintain a current will, health power of attorney, financial power of attorney, living will and HIPPA authorization.   You should also review your beneficiary designations on retirement plans and life insurance policies every few years.

10. Invest in Yourself: Take classes, earn a new degree or certification, attend conferences, and read and watch webinars to stay current in your profession.  Be sure you are paid what you are worth.  If you deserve a raise or promotion discuss this with your boss or pursue new career opportunities.