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Discipline, Organization: Keys to Successful Financial Game Plan
Organization, discipline and a sense of purpose. They sound like qualities a football team would stress in preparing for the next weekend’s opponent, but they can also be virtues in helping you achieve your financial goals.
Ideally, you should consult with a professional financial planner to map out a comprehensive strategy. But with personal commitment -- and perhaps some sacrifice -- you can take several steps on your own to help build a successful financial game plan.
Know Yourself -- Take inventory of your finances. Calculate your assets -- cash, IRAs, mutual funds, real estate, life insurance -- and your liabilities, like a mortgage or consumer debt and deferred income taxes on investments. Prioritize your objectives by what’s most important to you: retirement planning, saving for college, increased investment returns, risk management, etc. Determine your current tax bracket and understand its implications for your strategy.
Start Saving Now -- Assuming an average 8 percent annual return and a retirement age of 65, every dollar saved at age 25 is worth nearly five times as much as a dollar saved at 45. Probably the first thing to do is take full advantage of any employer match in any qualified savings program offered by your employer. Don’t miss out on the “Triple Treat” of an initial tax deduction, matching employer contributions and tax-deferred earnings offered by most 401(k) or 403(b) plans.
Take Stock of the Market -- Mutual funds may be a good way to start in the stock market. Find one that’s well managed and meets the risk profile you will be comfortable with. If you can, sign up for the built-in discipline of an automatic investment program. This will not only allow you to take advantage of dollar cost averaging, but may help you avoid the investment minimums otherwise required by some mutual fund companies. Also, if you choose a fund, plan to stick with it for a while. However, a periodic investment plan such as dollar cost averaging does not assure a profit or protect against a loss in declining markets. You should consider your ability to make continued purchases even through periods of low price levels.
Curb Your Credit Cards -- If your total monthly debt payments (excluding your mortgage payments) are 20 percent or more of your monthly take-home pay, you’re probably overextended. Analyze your debts and see if any of the interest rates are more than the after-tax return on your invested savings. If they are, it makes sense to pay off these loans out of your savings. If you can’t pay off your credit cards in full every month to avoid paying interest, shop around for the card with the lowest available rate.
Be Wise with Windfalls -- If you come up with a significant lump sum such as a bonus or inheritance, try to resist the urge to buy the hot sports car you’ve always dreamed of. Your long-term financial future will probably be a lot rosier if you invest at least part of it.
Keep Current -- Financial markets are a dynamic, fluid environment. That, combined with the impact of major life events such as births, deaths, inheritances, or new jobs, make it imperative that you carefully review your strategy every year or so. Naturally, your review should be rigorous and disciplined, just like any successful game plan. For more information to help you plan your financial future, visit www.prudential.com.
Courtesy of ARAcontent