Financial planning, much like a good recipe, can only be truly successful when it is customized to your tastes. However, the omission of key components or ingredients can lead to less-than-optimal results. These key financial tactics will help support your overall financial strategy and your desired long-term outcome.
Live within your means.
“Budget” might be a dirty word to some, especially if you’re financially comfortable. However, overspending and a lack of awareness of your expenses can drain your accounts quickly. Practice discipline with credit cards and lines of credit—do not make purchases that you cannot afford. Also, try setting a monthly budget based on what you anticipate your regular expenses to be, and work on sticking to it for three months. Revise if needed, but try to stay close to your goals.
Savings—give ‘til it hurts.
According to The Washington Post, 71% of America have not put away enough money for retirement (https://www.washingtonpost.com/news/get-there/wp/2016/09/26/71-percent-of-americans-arent-saving-enough-for-retirement/?utm_term=.a58c8105a916 ).
Start to save as soon as you get your first job, and get into the habit of putting away as much as you can into your company’s retirement plan [401(k), 403(b), etc.]. Continue this throughout your career, and as you receive raises, increase the amount that you’re putting away.
The closest thing to a free lunch: diversification.
Real estate specialists often say that the three most important things are location, location, location. Similarly, when investing in securities, some of the three most important things are diversification, diversification and of course, diversification. Your portfolio allocations will be based on risk tolerance, cash flow, needs, time horizon, and goals. You can bucket each account according to your goals, and diversify them accordingly to help protect your investments in both good times and bad.
Compounding interest: the eighth wonder of the world.
According to Einstein, “The eighth wonder of the world is compound interest.” Why? Because when you allow your money to compound, you make money on your money, and your investments can grow significantly. As an example, at 7% return, your money doubles about every 10 years. So, a 40-year-old that has $1 million (taxes excluded) would have about $16 million by the time he or she is 80. That’s the wonder of compounding interest.
“An educated consumer is our best customer.” – Sy Syms
The more knowledge and understanding you have about both your investments and the markets, the better you will be able to differentiate between the right and wrong investments for your own situation.
Teach your children well.
Encouraging and supporting financial understanding is a powerful way to help your children and grandchildren build a solid, stable knowledge of both your legacy and the financial landscape. It will help foster financial responsibility and independence, and simultaneously give you the opportunity to pass along your values to the future generation. Communication is the key. We recommend including your loved ones in conversations about your financial goals and priorities.
Get your estate in order.
It’s never too early to start planning for the future of your legacy. Talk to your heirs about your wishes for your estate and intended asset distribution upon your passing. These conversations will help your heirs understand your intentions. Don’t leave it up to them to figure out—this could spare them a lot of heartache and confusion down the road.
Don’t let emotions dictate your investment decisions.
Market fluctuations are a normal part of investing, so avoid becoming emotionally involved in the ups and downs of the market. Take caution when listening to the “media experts,” and remember that they are looking at daily changes, not long-term horizons.
Spread the wealth.
When establishing your long-term wealth management strategy, don’t forget to consider your philanthropic goals and to support causes that are important to you. Involve your children so that they can learn about the importance of charity. Consider setting up a Donor-Advised Fund and give your children the responsibility of finding a charity to donate to.
Hire the right professionals to help.
Your wealth is more than the sum of your assets—it helps enable you to provide for your family, create memorable experiences and pursue your dreams. The future you envision should not be left up to chance. Engage an experienced professional who has your interests at heart and a fiduciary responsibility to put your needs ahead of theirs.