Let’s talk about some ways you could tweak your current
financial picture to potentially improve your financial future and
be better prepared for the milestone moments in your life.
Let’s talk about some ways you could tweak your current financial picture to potentially improve your financial future and be better prepared for the milestone moments in your life.
What are some steps you might think of taking with the goal of financial freedom in mind? We’re not talking about those routine steps like writing your goals down and setting a budget. Let’s go past the cliches and get into the real issues.
Look at your income source, your expenses and your debt. How do you earn income? If you earn it from one source, is there effectively a ceiling on it, or is there real potential for your income to rise in the next few years? Now look at your core living expenses, the ones you can’t avoid (such as a mortgage payment, car payment, etc.). Can any core expenses be reduced? Investing aside, you position yourself to gain ground financially when income rises, debt diminishes and expenses stay relatively the same.
Maybe you should pay your debt first, maybe not. If you are a business owner or a professional, for example, you’ll likely always have some debt. Your ultimate goal should be to build wealth – and you can plan to build wealth and minimize debt at the same time.
Some debt is “good” debt. A debt is “good” if it brings you income. If you buy a rental property, you’re paying a mortgage, but that’s considered a “good” debt because you’re getting passive income from the rent payments. Credit cards are “not so good” debts.
If you’ll be carrying a debt for a while, put it to a test. Weigh the interest rate on that specific debt against your potential income growth rate and your potential investment returns over the term of the debt. If the interest rate on that debt looks like it will outpace your income growth and investment returns, then you should really think about paying that debt down fast, because you can’t afford that interest rate.
As an added bonus, paying off your debts, paying down balances and restricting new debts all work toward improving your FICO (credit) score, another tool you can use in pursuit of financial freedom (again, we’re talking “good” debts).
Implement or refine an investment strategy. You can’t refrain from investing, even when the bears are out. You’re not going to retire on the monthly contributions to your 401k or IRA. You’ll retire on the growth and interest that those accumulated assets earn over time, combined with the power of compounding. To minimize the risk associated with investing, consider some of the protected growth features and living benefits offered through some insurance products. Consistent investing has the potential to help you significantly improve your financial life.
Manage the money you make on your way to financial freedom. There is no one-size fits all magic formula to tell you how to manage the money you make, however making even minor changes can go a long way. You don’t have to be fastidiously frugal, but you can learn ways to spend economically and within your means. If you are fortunate to make it financially, avoid the tendency to “succeed and live lavishly.” While you may have been able to afford luxuries, that won’t always be the case.
If you simply accumulate unmanaged assets, you have money just sitting there open to risk – inflation risk, market risk, even legal risks. And don’t forget taxes – while not technically a “risk”, they are a threat to your money. The greater your wealth, the more long-range potential you have to accomplish some profound things – provided your wealth is directed.
If you want to build more wealth this year or in the near future, don’t neglect risk management strategies that could be instrumental in helping you retain what you have earned. Your after-tax return matters even more than your investment return, so tax management should be part of your overall financial picture.
In a nutshell, it is about earning as much as you can, spending thoughtfully, saving as much as you can and achieving a good balance between your current financial status and a reasonable assurance of a comfortable retirement.
Request professional guidance for the milestone moments in your life to best manage the wealth you are growing. Much as you seek the services of a good doctor when you are ill or the services of a realtor when you are buying or selling a home, professional guidance in your money matters can be of immeasurable value. Good financial advisors such as tax professionals, attorneys and financial consultants can help to educate you about the principles of wealth building. You can draw on that professional knowledge and guidance today and for years to come.
