Viewpoint: Tips for engineering your financial future
Mar 14, 2014 | 526 views | 0 0 comments | 29 29 recommendations | email to a friend | print
Financial resolutions can be the most difficult to keep. They can include minute detail, number crunching, plenty of files and discipline that can affect a person’s entire lifestyle.

Many folks simply are not predisposed to combing through the details of their financial situation; for them, the financial world is abstract and filled with arbitrary rules, constantly changing interest rates and other complexities, but being more involved in your own money is well worth the investment.

While professional help is recommended for many aspects of a person’s financial affairs, it’s ultimately up to the individual to understand his or her own money.

There are many things the average person can do to take control of their financial life.

I generally offer the following four suggestions:

1. For your cash flow, keep in mind the four A’s — Accounting, Analysis, Allocation and Adjustment.

The four A’s describe a systematic and disciplined approach to your daily, weekly, monthly and yearly spending habits. Accounting involves gathering all your relevant financial information — income, recurring bills and other expenditures — creating a central list of each item, and pulling it together in a place where it’s easily accessible. Analysis is reviewing the information to determine whether you have a shortfall or surplus, and finding places to reduce expenses. Saving $100 a month on dining out, for instance, would allow you to apply $100 to your mortgage loan principle, saving you a substantial amount in interest payments. Allocation involves determining your financial commitments and priorities, needs versus wants, and distributing your income accordingly. Adjustment involves periodic reviews of your financial information and shifting assets to meet changing needs.

2. Utilize estate planning tools such as wills and trusts; make sure the details are accurate.

Wills and trusts allow you to spell out how you would like your property to be distributed, and much more. A will gives you the opportunity to nominate your executor and guardians for your minor children. If you fail to make such designations through your will, the decisions will probably be left to the courts. Bear in mind that property distributed through your will is subject to probate, which can be a time-consuming and costly process. Trusts, which are more complex, let you customize the distribution of your estate with the added advantages of property management and probate avoidance.

3. Start planning your retirement sooner rather than later.

There are a variety of retirement planning options that can meet your needs. Your employer funds some; you fund some. Bear in mind that, in most cases, early withdrawals before age 59½ may be subject to a 10 percent federal income tax penalty. The latest date to begin required minimum distributions is usually April 1 of the year after you turn age 70½. Withdrawals from tax-deferred plans are taxed as ordinary income. The top planning options include defined benefit pension, money purchase pension, profit-sharing plan, savings plan, employee stock ownership plan, tax-sheltered annuities, individual retirement accounts, self-employed plans, simplified employee pensions and savings incentive match plans for employees.

4. Remember the first commandment in safe investment: diversification.

Virtually every investment has some type of risk associated with it. Don’t put all your eggs in one basket. Diversification is one of the main reasons why mutual funds may be so attractive for both experienced and novice investors. Many non-institutional investors have a limited investment budget and may find it challenging to construct a portfolio that is sufficiently diversified. For a modest initial investment, you can purchase shares in a diversified portfolio of securities. Depending on the objectives of the fund, it may contain a variety of stocks, bonds and cash vehicles, or a combination of them.

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(About the writer: Paul Taylor is the founder and owner of Capital Advisory Group & Tax Planners of Lake Norman and Capital Investment Advisors Inc. Taylor, a fully licensed investment advisor, has more than 20 years of experience in the industry. Since 2007, he has been a member of the National Ethics Bureau, which acknowledges individuals who prove they are committed to upholding the highest ethical standards in their practices.)