Do You Know the Basic Concepts of Sound Financial Planning?

Very few of us would start a journey without at least consulting a map (think GPS today) or some sort of guide to help us reach our destination. A similar case can be made for financial planning – success does not just happen. It’s often hard work and long-term planning that helps enable one to reach their desired destination. A good first step is to set realistic goals, followed by a plan designed to achieve them. While there’s a lot more to be said about financial planning than what we cover here, understanding the concepts below can help ensure that your financial journey starts on sound footing.

Cash Flow: A basic rule for financial success is to regularly have more money coming in than going out. This, however, is often easier said than done. While many of us typically have a general idea of our monthly income vs. expenses, successful long-term planning requires accurate information. A better understanding of your income (salary, investments, interest, bonuses, Social Security, etc.) vs. liabilities (mortgage/rent, taxes, household expenses, etc.) is a critical first step to help you reach your planning goals.

Savings: How much should someone in your life stage have in savings? Financial professionals often recommend having six to 12 months of living expenses on hand in case of an emergency. Could your investments be easily liquidated if needed? To make reaching savings goals easier, consider an automatic savings plan. Such plans regularly transfer a specified amount of funds into a savings account at a preselected time, usually with each paycheck.

Debt: Whether it’s mortgage payments, college or medical debt, auto loans, or high credit card bills, debt destroys wealth. Reducing and eliminating debt is a key to building wealth. When managing debt, time counts. Consider that paying off a loan early, for example, brings you one step closer to financial independence.

Investments: You do not need a lot of money to start investing, but you do need to understand how you want to invest. Questions to ask include: Are you investing for growth? Income? Both? What is your personal risk tolerance?  Your financial advisor can help you develop a long-term financial plan and investment strategy and help you become more knowledgeable about investing.  

Insurance: Insurance helps individuals, families, and businesses manage various risks, such as income loss resulting from an unexpected occurrence. Insurance can help families manage the risks of not living as long as expected. It can also provide estate planning benefits. It offers death benefits to selected beneficiaries, it gives liquidity that can be valuable with an estate, and it allows loved ones to acquire financial support.

Other Considerations: Most of us have other financial obligations for which to plan. Is there an elderly relative for whom you are responsible? Will you be able to help pay for your children’s higher education? Do you have dependents from a prior relationship?  Have you and your spouse planned for your long-term care needs? Would you like to help a charitable organization?

You can find more detailed information on these topics here.

At Southwestern Investment Group, we understand that how your money is managed today may impact how you live tomorrow. With that in mind we regularly seek new and better ways to serve you. Learn more by contacting one of our advisors today.

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