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How to Achieve Financial Security in 7 Straightforward Steps

How Do You Achieve Financial Security?

The short answer is you need a solid financial plan to achieve financial security, which is true at any age. This really is the one constant; your goals will be different at different stages of life, but to attain those goals and prepare for your financial future, you have to plan well. You need a detailed financial plan; don’t try to fit it on the back of a napkin. It needs to include a clear statement of your goals, an honest assessment of your situation, a detailed understanding of your income and expenses, accurate time frames, and a rock-solid investment plan to grow your savings toward these goals. The good news, anyone can reach financial stability regardless of their age or present circumstances.

Don’t Wait: Ensure Your Financial Security Today And Schedule A Complimentary Consultation

 

Step 1:   Work with a Financial Planner 

Whatever stage of life you’re in, think about how you’d design the home you’d like to live in. Whether it’s a condo or a 5-bedroom home on an acre, if you’re going to build it, you’d hire an architect to work with you to translate your vision into a reality that can actually be built. Even if you’re moving into an existing home, to make it just right, you’d hire a decorator to again translate your vision into reality. Financial planning is the same. Working with someone who knows how to correctly translate your vision for this stage of life and beyond is key. The danger of trying this on your own is that you’ll make the wrong assumptions, overlook problems, or won’t develop action steps that actually accomplish your goals and work towards financial stability.  

I’m in my 20s, just starting a new job, and I really want to get on the road to financial security. 

Many people in this stage of life assume that they don’t need a financial plan. That couldn’t be further from the truth. At this stage, setting the right foundation will pay huge dividends for your financial future. Developing an appropriate budget, setting realistic savings goals, eliminating high-cost debt, and avoiding unnecessary risks are critical issues in the early years. 

Too many people assume that once they get a job, find a place to live, and kind of “settle in,” the rest will take care of itself. In a certain sense, that’s true. The rest will take care of itself, but it won’t necessarily take care of you. A plan helps you give direction and control of how things happen.

This is where a financial planner can be extremely helpful. The right planner will help you:

  • Draw up an appropriate budget
  • Set an effective savings and investment plan
  • Determine which debts to tackle first, second, then third, and on down the line.  

I’m middle-aged, and I want financial security.

Middle age is a time when most people look around and realize they’ve accumulated more assets, more debt (usually in the form of a mortgage), more income, and more expenses. There are often more mouths to feed, young lives to guide, and a financial future to protect. The risk of not planning properly is greater here than they were in your 20s or early 30s. Life affords lots of mistakes, but there comes a time when mistakes can be critical to achieving financial stability.

Middle age is that time. We often feel invincible when we’re young. But with some age comes maturity and the wisdom to realize you’ve got precious time left to develop a strong plan and implement solid strategies to accomplish your goals.  

Unfortunately, this is also a time when – because you’ve accumulated some additional assets – that the financial sharks start to circle. Too many “advisors” see a person with some discretionary cash flow and a nice savings or investment account as a target. Sales pitches for annuities, insurance, and commission-loaded investment products are disguised as “advice.”  

Don’t fall for these. Find a 100% objective advisor to work with. As they are known, fiduciaries are obligated by law to work for their clients’ best interests at all times. Find a fiduciary advisor with a strong track record, and you’ll be in an incredibly strong position to develop the right plan to achieve financial stability and your goals.

Step 2:   Assess Your Personal Finances

The right plan starts with a thorough analysis of your current financial situation. Everyone is different, and understanding your unique situation is important in achieving financial security. Your level of income, your expenses, your assets, your liabilities, your risks, and your goals are the ingredients of a successful financial plan. Anything else is not worth the paper it’s written on.  

In many ways, this process provides you with a good financial education. A good planner will not simply take your information, disappear for a couple of weeks, and reappear with “your plan.” A good planner will help you understand what your situation really looks like, where the opportunities lie, where the dangers await, and what steps should be taken. 

Credit Card Debt

If you have not already done so, this is the time when a good planner will show you how to get rid of credit card debt. You don’t necessarily need to get rid of the actual cards if you pay them off, but if you have debt, especially high-interest credit card debt, you’re likely paying upwards of 6% APR each month. You’re digging a hole each month that you have to climb out of before you can begin moving forward toward financial stability. Remember, 6%/month is 36% per year.  

Student Debt and Impulse Buying

Other items that may be holding you back might include lingering student debt and impulse buying habits. The extra cash flow that comes with promotions and new jobs can easily be folded into new spending. At some level, that’s OK. You don’t need to continue to live like a starving student your entire life. However on the flip side, you shouldn’t buy just about anything you feel like. You have to live on less than you make.

One of the best values a strong financial planner provides is identifying whether these problems exist and, if so, how to stop them. That sounds easy, but we’ve counseled many people who didn’t know how or where they were spending so much. They knew they made a good income, but they also knew that their savings were too small and that they might not survive an economic setback or job loss. Their emergency fund was their emergency; they didn’t have one.

Would your emergency fund float you for six months to a year should you lose your job or become too ill to work? That’s the bare minimum. If you factor in what it might take to find a new job, estimates range from 1 month for every $1,000 of monthly income to 1 month for every $10,000 of annual income.  

The right assessments of your personal finances will determine how much you actually need to have for emergencies so that you can then position other income and assets for the longer-term goals.

Step 3:   Financial Goals

With your current situation thoroughly assessed and your potential emergency needs covered, you’re ready for the third step: establishing your financial goals.  

What are your financial goals? “I want financial stability,” is not a goal. “I want to pave the way for my kids’ financial future” is not a goal. They lack specificity and reasonable time frames. Common sense tells you that retiring tomorrow is a dramatically different goal than retiring in 20 years. Similarly, paying for 4 years at an Ivy League institution is a dramatically different goal than paying for a couple of years at community college with the balance spent on in-state tuition.

For most people, those are the two biggest goals they have. Right behind them are often buying a larger – or even a vacation – home and helping your parents financially. Whatever they are, your goals need to be specific, and include a timeframe for when you want to achieve them.

Financial security is a goal that is also common. It’s on almost everyone’s long-term list of financial goals. But it’s not actually a goal, at least as we’ve defined it above.

To put it simply, “financial security means having enough money to fund your lifestyle and work toward your financial goals.” 

Financial security includes your goals, but more importantly, it means being in a place where you have confidence you have enough cash flow to fund your current living expenses and to fund goals.

We at First Financial Consulting are huge advocates for our clients to achieve financial security. We have the experience and tools to make sure that you can get to the place where the present is being taken care of, emergencies are covered, and you’re comfortably working toward your specific goals.

Step 4:   Save for Retirement

Financial security means working toward specific goals, and for most people, that will eventually include saving for retirement. In the early years, you’ll spend to get settled and eliminate high-cost debt. In the middle years, you’ll save to prepare for emergencies, future financial stability, and long-term goals. At some point, one of those long-term goals becomes retirement. 

Whether it is concurrent with, or after, saving for the next house or college for the kids, etc., you have to plan on retiring at some point. It will come. The question is whether you’ll be prepared for it – to continue your lifestyle as you’ve come to enjoy it – or find yourself forced into uncomfortable compromises and excessive down-sizing. Eventually, your financial plan will include a retirement plan.

The retirement plans we develop for our clients focus on how best to utilize the common tools available to most people – 401k Plans, Roths, IRAs – as well as how to create unique retirement vehicles suited specifically to your situation, such as deferred compensation plans, super-funded pension plans, and self-directed IRAs.

Step 5:   Investment Strategies

Savings that are focused on long-term goals, especially on retirement, become investments. Saving is not the same as investing. Saving is the act of putting aside an amount that you don’t spend. We believe our investment approach is best because it relies on 3 key pillars of success: objectivity, predictability, and accountability.

In essence, we approach investment management objectively (without any conflict of interest or hidden sales pitch), to offer you a predictable goal (a stipulated target return) so you know what the goal actually is, and to accept accountability by actually measuring performance over time against the goals established. 

We think this is obvious, but we’re constantly surprised by the number of “advisors” who avoid these like the plague.  

Your investment strategy needs to determine what allocation of various investments – like stocks, bonds, real estate – is most likely to achieve your specific and unique goal. Implementing that allocation needs to be careful and purposeful. At First Financial Consulting, we are committed to transparency throughout the investment process, from developing the plan to the strategies’ execution to reviewing performance.

Step 6:   Review Your Investment Portfolio Regularly

Developing and implementing the right investment plan is not the end of the journey. You need to review your investment portfolio regularly. Specific investments that are good today may not be good tomorrow. Our economy is vibrant and constantly changing. Companies that were market leaders yesterday are fighting for survival today; companies dismissed as insignificant yesterday are dominating their industries today. Think about Sears vs. Walmart. It’s just one example among thousands. There was a time when owning Sears was a great investment. Then there came a time when it wasn’t.

You need to revisit investment selections regularly to make any necessary mid-course corrections. “Set-and-forget” is not a strategy for your financial future. Whatever your allocation between bonds, stocks, real estate, etc., it will change over time as the economy grows and contracts. You will have to rebalance to maintain the appropriate allocation over time. The investment selections within that allocation may need to change, as our reference to Sears and Walmart illustrates.  

Financial Security demands regular review. It is not a one-time occurrence, nor is it something you achieve and are guaranteed to keep. It is maintained by diligence and discipline. These are key in creating financial stability. Those are also advantages which a good financial advisor can provide. 

Step 7:   Live Healthy, Wealthy and Wise

The essence of financial security is balancing competing needs and desires. We all tend to want what we want now. Our society, unfortunately, makes that way too easy. Credit cards are plentiful, and they can be tempting. Teaser rates of 1% and 0% are commonplace, but those credit card rates can be crippling when the special rate period ends. Living life simply today to achieve a more comfortable tomorrow is the golden rule for financial security. Balance what you want to do today against what you want to do tomorrow. Balance how much you spend today, so you have some for emergencies and to invest for tomorrow. Take care of yourself also. You’ll be no good to yourself or your family if you overwork, overindulge, or neglect your health. It seems Benjamin Franklin hit the nail on the head 250 years ago. We just need to live it out today.

Achieving Financial Security is Possible, and We’re Here To Help

How do you define financial security? Are you absolutely confident that you will achieve your goals? If you think you’ve got this all wired in, we’re honestly happy for you. Financial security is the ultimate goal, and when we meet someone who has achieved it, we rejoice for them.

But if you have any concerns about whether your goals fully encompass your vision or whether you will actually achieve financial stability, then we’d love to speak with you. In fact, we would urge you to email or call to schedule a free consultation. We have 40+ plus years of helping clients achieve financial security; we have worked with people in all stages of life, and we’ve seen clients through all those stages. In fact, we continue to work with many of our clients’ children as the baton is passed from one generation to the other. Through it all, as fiduciaries, we have kept our eye on our clients’ best interests. We don’t sell products, we don’t take commissions, and we don’t compromise our objectivity. We help our clients succeed, and we’d love to help you.

Schedule a Complimentary Consultation 

626-844-4630