Financial Zip

As we have seen in the last few months there is a lot of uncertainty out there in the market place. The housing market turning down, the credit woes of the large corporations, the tremendous amount of debt that is pressuring every household in America. So in this type of atmosphere we need some sort of prescription to right the ship. Well there is 6 simple steps to follow in order to firm up a Financial Foundation.

1. Decrease your spending and increase your income.
2. Eliminate all your Debt.
3. Create an Emergency Fund.
4. Ensure there is Proper Protection.
5. Wealth Accumulation.
6. Estate Planning

Decrease Your Spending and Increase your Income

The first thing that must be done when a ship is sinking is bail the water and get rid of anything heavy so you can at least stay afloat. Most people are spending more than they bring in. So each month it creates the situation where you are just living month to month. This is no way to live. In order to decrease spending you need to create a budget that will help manage and identify the areas where you are spending too much. By doing this you can eliminate in unnecessary spending.

To create income some good things to do are: have a garage sale, sell something on the internet, if you are feeling ambitious start a business that targets an area of interest or expertise that you can use as extra income. Do something creative that will bring income extra income

Eliminate Date

One of the modern day scourges in our society is debt. It is something that most households have. Most Americans have at least 4-5 credit cards and carry a balance on average of $8000. Over their lifetimes most people will pay more for something in interest than the actual cost of the item. To get rid of debt a good practice to employ is that of debt roll up. Rolling the minimum payment of one credit card into another until it creates a snowball effect in which you will be able to pay of all the debt you have.

Create an Emergency Fun

This is essential once your debt is paid off. It will allow you to use your emergency fund to pay for emergencies instead of going back to credit cards. The recommendation for an emergency fund is 3-6 months of your gross income. This insures if you lose your job, in an accident or something similar that you won’t be in the poor house. Some good investment vehicles for an emergency fund would be: high yield savings accounts, HSBC bank and ING have some very good accounts that yield some where between 4.5% and 5%. The important thing with an emergency fund is that you want liquidity so it is easy to withdraw but not easy enough so you are not tempted to use it for non emergency items.

Ensure Proper Protection

This is a very important step. I was talking to a colleague of mine a few months ago who had a friend of his die in a construction accident. He left a Wife and a little boy. The truly sad thing was that he had no life insurance and it left the family struggling to pay for even just the funeral. This is the case for the majority of Americans they are under insured. The purpose of Life Insurance is to make sure upon some ones death that there is enough to pay for the funeral, other expenses like bills and taxes, and then to leave enough income for the family to live on. A simple solution is to get a simple term life insurance they are relatively inexpensive especially for young couples. But the important thing is to make sure you get some.

Wealth Accumulation

A very small minority of people in this country have a financial asset. This would be anything like a money market account, certificate of deposit, bonds, stocks, real estate. We tend to as Americans focus on things that depreciate in value like cars, expensive vacations, luxury items, eating out. People who have wealth tend to put money towards stocks and bonds and real estate. That is why they have more money than 90% of Americans. A very simple way to build wealth is to take 10% of your income per year and invest in something like a Mutual Fund, Stocks, Bonds or Real Estate. This will ensure that when you are in retirement you will be able to enjoy it.

Estate Planning

Isn’t estate planning for the rich? NO. Let me illustrate. People who have accumulated a lot of wealth want to protect it, from things like taxes, inflation etc… Say some one who has an estate of over $10 million dollars makes a mistake in his estate planning and owes taxes and fees of over $6 million dollars. That is 60% of his over all wealth but he still has $4 million left over for retirement. It is definitely not good that he lost $6 million dollars, but he can be comfortable with the $4 million. Now let’s say some one with a net worth of $700,000 ends up paying about the same rate of 60% of taxes on their estate. They are left with $280,000 left for retirement. It is obvious that most people need an estate plan to preserve and pass on their wealth. Especially for people who have a small net worth.

These six steps are the Foundations for accumulating and preserving your wealth in the future. I will be releasing additional blogs for each step, that will go into detail a little more than what was touched upon here.