The Five Planning Areas You Want to Focus on to Achieve Financial Success

To increase your chances for financial success there are five areas you should consider paying attention to. Not all at one time either – it will be over the course of years, more likely decades.

A great place to start for most people is to participate in their company benefits program. Be aware however, that this is just a start. You must create a plan that forces you to consistently be reviewing, updating and adjusting your strategies to increase your chances of attaining all five of these goals. This is a simple step in securing your financial future, but not necessarily an easy one.

Reaching financial independence is very similar to staying healthy into your 80s. There are unknowns you cannot plan for, although there are some basic principles that if adhered to, will increase your chances of achieving this goal. There are a lot of books and articles and plenty of people giving health advice these days, with the majority of it being good, sound advice. But the key, as you know intuitively, is to do a combination of things over years consistently. You have to:

Maintain your ideal weight

Keep your blood pressure in range

Keep your cholesterol low

Maintain a balanced lifestyle

Get adequate rest and sleep

We know these are the major ways to maintain your health into your eighth decade, but we often have a tendency to employ just a few strategies, focus on one or two of them, and hope that is enough. This is true for many of us when we look at our financial well-being too.

There are five areas you need to pay attention to periodically. You do not need to do all of them all of the time (much like the list above) to stay healthy. Most of us should focus on the appropriate goal when life events occur. An example might be reviewing protection needs when you have a child, or the kids move out, or you retire. The more you put systems and processes in place like this to focus on all five of these consistently for a decade or more, the better chance you have of achieving financial success.

The Five Primary Goals

• Investments – Achieving Financial Independence: Investments are the foundation to building wealth. Whether it’s a specific stock, a rental property, your 401(k), or mutual funds – building wealth is about managing, diversifying and growing your investments. Using the health metaphor above, your investments are your body, your whole body… not just your heart or your head but the combination of your entire body.

• Retirement – Retire with Dignity: Financial independence for most people is defined in terms of their ability to retire. This is a different number for everyone. There was a bestselling book called The Number a few years ago. The basic premise was that one of the leading questions many baby boomers had was what was the amount of money they needed to retire – their number. Most people put this in terms of an amount of money. Do you need $ 500,000, a million, two million, etc… ? But as I mentioned, assets are an essential part of the foundation and a must, retiring with dignity is more than this. Broaden your thinking around retirement. Retiring is not an event, it is process. The more you think of it as such, your chances of retiring with dignity increase dramatically.

• Estate Planning – Creating a Legacy: Estate planning has two primary objectives. The first objective of any estate plan is to make sure the people you want to get your assets actually get them. The second objective is a make sure you pay as little estate taxes (also known as the Death Tax) as possible. Both sound simple and easy but as you know, when you are talking about money, nothing is simple and easy. I have seen ex-spouses named as the person to get a 401(k) even though he/she had been remarried for more than ten years, simply because the deceased didn’t update the beneficiary form. This is a worst case example of not doing estate planning, although there are other less obvious but equally consequential results. Whether it is an ex-spouse, government taxes due, or inadvertently leaving out someone that you wanted to leave something to, the outcome is the same – you did not give your assets to the people you wanted to have them.

• Protect Lifestyles – Preparing for Uncertainty: Those of you that watch House MD on T.V. may recognize this quote “Good things usually happen. Bad things sometimes happen”. This philosophy sums up why it is important to protect yourself against bad things happening. A minor car accident or a death in your family can derail all your other financial goals very quickly. Primarily because these events can take the assets you have accumulated, and as we said earlier, it is these assets or investments that are key to achieving your other goals. There are some basic strategies to help guard against this. The leading one is buying insurance. You can insure against almost everything, but when you weigh the cost, risks and consequences of not buying specific protection, you will see there are five types of risks you should have high on your prioritization list to protect. They are your life, personal property, health, the possible need for long term care, and disability income.

• Taxes – Tax Efficiency: One of your biggest monthly bills is your tax bill. It is not that obvious to most of us because we have it automatically taken out of our paychecks and if you have a mortgage it is added right into your monthly payment. This is genius on the government’s part. If every American had to write a check to the government for the amount they pay in taxes, with our income going into our checking accounts and then we cut checks to the various government agencies, I believe there would be reform within six months. I am also not just talking about federal taxes; for most Americans, if you added up their federal, state, sales tax, property tax, etc… it would be 50% or more of their income each month. Managing your tax bill is an essential part of wealth management.

In this article I purposefully did not get into specific strategies. My goal was to just introduce you to the Five Planning areas. Do not get overwhelmed by all this information and do nothing!

Do something… consider hiring a Fee Only Financial Advisor who can help you:

Identify and execute one or two strategies a year.

Prioritize your goals and timing as to when to execute the strategies.

Help make these goals simpler. (You’ll notice I did not say ‘easier’).

Remember, financial independence is similar to having good health into your 80s. It is not doing one thing; it’s doing many things consistently over time.