The desire for financial success and security is universal. Preparing for retirement, unexpected expenses, paying for college, dream homes, and vacations, all require understanding of financial principles. Here is a quick snapshot of good financial practices, and how they will help you create the wealth and security you desire.
Account: Do you know how much you actually spend each month? Do you account for discretionary spending? If not, it is time to take a careful look. Most people are stunned at the amount of money spent on things like lunches, entertainment expenses, coffee, and other items that leave no lasting memories. Once you account for how much you are spending on non-essentials, take a look and see if you can do without some of these expenditures each month, and start saving that money for a great vacation, new vehicle, or better yet, for retirement.
Budget: Budgeting is not something we look forward to, but it should be. By creating a budget that includes general expenses, savings, and discretionary money, you are taking control of your financial health. This is a key stepping stone to creating financial security that will allow you more freedom in the future. Setting savings goals is important, but you simply must commit to feeding your savings accounts each month by developing a budget that you can live with.
Create: Wealth building can be a difficult concept for people that are struggling in a paycheck to paycheck routine. But, that is when it is most important. Keeping an eye on financial goals, retirement goals, and dreaming a bit, allows you to understand the money you need to meet and exceed your goals. A personal accountant can help you identify opportunities to increase your wealth, reduce debt, and capitalize on the best tax breaks available.
Debt: Debt is a necessary evil. When used and managed properly, debt – like a mortgage or car loan – is a smart move. However, when debt levels increase while income levels remain the same or decrease, it becomes a problem. For financial security, it is recommended that your total debt level not exceed 38% to 40% of your income. This includes housing, vehicles, student loans, and credit cards. Ideally, to create a strong financial future, your debt load should hover somewhere between 28% and 34%. Meet with your personal accountant to discuss options and to set goals to limit your debt load to secure your financial future.
Expenses: Touched on briefly above, it is important to keep expenses in check. Account for the money you spend each month, make wise financial expenditures, and save for the future. Ideally, your discretionary expenses should account for less than 25% of the money you save each month. Where people get into dire financial problems is when discretionary expenditures are three or four fold greater than money going to pay off debt, or into savings accounts.
FICO Score: Be mindful of your credit score. A poor credit score can cost you tens of thousands of dollars; the lower the credit score, the higher the interest rate you will be charged on credit cards, vehicle loans, and mortgages. Request your credit report at least annually, and carefully review it for any errors, they do occur.
Give: Find a charity or nonprofit that you believe in, and give when you can. If the organization is designated by the IRS as a nonprofit, you may be able to deduct your financial or physical donations. Speak with your personal accountant to learn more how to optimize your financial contributions and the potential tax benefits.
