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Financial Strategies
Having a Sound Financial Plan is Key
by John Vyge (Write for us!)
(Click on the links within the article to get definition of that word)
Before you start investing your family’s hard earned assets, having a sound financialplan in
place is the key to making sure your investmentchoices are well directed. Below you’ll find some of the steps you can take to prepare your financial plan in advance. As always, it’s always best to speak to a professionalfinancial planner in advance before implementing:
Step 3: Setup a Home Equity Line of Credit equal to six months of living expenses, as a back up to your emergency fund. This will increase your safetynet to 1 year’s worth of living expenses, ample time for an out of workperson to get back to work after a job loss.
Step 4: Put together a budget that allows for saving at least 10% of the income earner's income. The budget should show the income earner's monthly income, and all monthly cash outflows of the household. Look for ways to cut out/down all non-discretionary spending in the budget such as eating out, entertainment, and others.
Step 5: Pay off all non-mortgage and non-vehicle debts... especially credit carddebt. As a simple rule of thumb, keep your monthly housing expenses to less than 28% of the income earner's gross monthly income and total monthly debt payments to less than 36% of gross monthly income.
Step 6: Make sure you are saving at least 10-15% of the income earner's paycheck towards retirement. If money is tight, consider saving in this order. Save
up to your employer's 401k match first, and then use the rest of your savings money to fund a Roth IRA for each of you (assuming you qualify). Then if you still have excesscash remaining, up your 401k contributions. Consider saving for your children's college only after you have taken care of your retirement savings.
It's a simple philosophy. Financial planning first - then investing, to keep your investment choices moving in the direction you want them to. As always, it’s always best to speak to a professional financial planner in advance before implementing because assumptions and recommendationsneed to be customized to your specific situation.
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