Basic financial steps

Here are some basic steps that can help you
in planning your financial future

Guarding against life's uncertainties

• Emergency Fund - Before you get started with an investment program, or contributing to a retirement plan, experts recommend that you FIRST create an emergency fund.  Put an amount equal to at least 3 months (preferably 6 to 12 months) of current household income into a regular bank account.  This account is to give you a "financial cushion" in event of short term upheavals (illness, accident, loss of job, car repair, etc.), so that you won't have to borrow money to get by.  This money should be in safe and liquid types of accounts (passbook savings, money market, etc.) before embarking on longer term goals.  If you are just starting out, it may take a while to save this amount.  Be sure you have a basic insurance package during this time, too (home, auto, medical, life, etc.).  Develop a Plan - The emergency fund should be the first step in an overall plan. While it is being created, take some time to set goals for short, medium, and long term needs.  Do you want to save up a downpayment for a new house?  What about college for the kids?  What age would you like to retire?  And, very important, decide how much you can afford to put aside regularly to provide for these goals at this time.  For most of us, that involves building your plan in stages, because we can't do everything we want and need to do from day one.  A written budget is a must, and will help you stay on track. 

• Build the Foundation -  After the emergency fund is well on its way, and you have some written financial goals, the next step should be to solidify the "foundation" of security with risk management tools, insuring assets against loss.  This involves having sufficient property and casualty insurance on your car, home, and other valuables.  And, it also involves purchasing the right types and amounts of life and health insurance. Both life and health insurance coverage "buy time" for you to save and accumulate assets.  It wouldn't make sense to insure all the "golden eggs" (car, home, etc.) for their value, but forget to cover the "goose that laid them" (the breadwinners).  Remember, your most important financial asset during your working years is "your ability to earn an income".  Be sure that you have this asset covered with sufficient LIFE and DISABILITY insurance. Think about it for a moment:  If you lose all your other assets, but retain the ability to bring home a paycheck, you could eventually replace all of your "eggs". By contrast, if you lose your "ability to earn a living" because of death or disability, you could lose everything that you worked years to accumulate.  You may not be able to afford all the insurance that you need at this time, but make sure that you have at least a basic package of major medical coverage, property & casualty (auto/home), and hopefully some disability income and life insurance.  An employer-sponsored group health plan, or similar personal protection, is a MUST. Ask an insurance advisor to help you determine the amount and type of coverage that you need.  Until you have your foundation secure, it doesn't make much sense to embark on a long-term investment program.

Growing your investments

• Save for the Future - Once you have established an emergency fund, put your goals in writing, and insured the "Goose and the Golden Eggs", you should be ready to start saving for your other goals. There are many options available, from conservative to aggressive in nature.  It will help to form the habit of regularly "paying yourself first", setting money aside each week or month for the future.  You may want to seek the advice of a professional to help determine what your time frames and risk tolerance factors are, and to look at options that fit your needs. Having sufficient income to retire when you want to will require some planning, and you also have to consider healthcare needs throughout your lifetime.  If you are lucky enough to already have substantial assets accumulated, you will want to make sure that your assets are allocated properly to help achieve your goals.

Managing your retirement and estate 

• More Advanced Planning - You may eventually need to involve other financial team members (such as an attorney, an accountant, a trust officer) to make sure your plans are maximized to provide for your accumulation goals, and your distribution goals at retirement or death. If you have any property at all, and especially if you have young children, you will want to establish a Last Will and Testament. This will help assure that your wishes will be carried out in event of death, especially in the areas of money management and guardianships for juvenile children. There are also other legal issues to be considered, such as Trusts, and Medical Power of Attorney. Long Term Care has to be a consideration for anyone wanting to protect assets in their golden years, so find an insurance advisor who can explain the options to you.  People with substantial assets will need to do some Estate Planning to reduce the effect of possible inheritance taxes, and to maximize assets passing to heirs.  It is not likely that any one advisor will be able to help with all financial planning issues, so be prepared to listen to more than one person for recommendations.

      Summary

It has been said that "most people don't plan to fail, they just fail to plan". Put your goals in writing, review your plans on a regular basis, and make the necessary adjustments as you go along.  You will be a happier person if you control your finances, instead of the finances controlling you.

Picking a professional to help you - Ask friends, family, and co-workers for recommendations on who to contact for assistance. Ask them who they depend on for advice, and interview several of the nominees to find one(s) with which you feel comfortable. You may also find it helpful to check with professional associations for a list of members in your area (for example, the National Association of Insurance and Financial Advisors offers a "member locator" on their website, www.NAIFA.org ). I have been a member of NAIFA for over 30 years, and our local Memphis-area chapter ( www.NAIFAMemphis.org ) has many members that can serve you. At that site, you can click on the member directory, type in your zip code, and find dozens of member advisors in your area.  Call several, and ask about the products and services they have to offer.  Some advisors charge fees for services, some work for commissions on products sold, some do both. So, be sure that you understand how they will be compensated in advance, and what services you can expect from them.

We sincerely hope that this information is helpful to you in getting your financial affairs in order.

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