Re-discovering the Fundamentals of Financial Planning
To lose weight in the 80s, we went on low-calorie diets. In the 90s, we switched to low-fat diets, and now, in the 21st Century, we are completely convinced that its all about the low-carb diet. What ever happened to just eating healthy?
In a culture where everyone is looking for shortcuts, its not often that you see something about fundamentals. Well, take note of the following three basics of financial planning, because it may just be whats been missing from your plate.
1) Have a goal in mind! Savings are only as useful as your desire to apply them to a specific purpose. If your goal is a new home, great; if its to send the kids to Fordham, even better; and if its retirement, terrific. Once you have the why, you must determine how much, and when. These two variables will determine how aggressive you must be, as well as how much of a present sacrifice youll need to make in order to reach your goal.
2) Spend less than you earn! If youre a bit late in the game with this one, then the first order of business is to minimize your debt. The common American philosophy is to spend first, and save whats left. Contrast this with the Eastern tendency to invest first, and spend whats left. Can you guess which approach is more likely to lead to wealth? Many people will admit that it is unreasonable to buy a 50 plasma television if the only way to pay for it is with a monthly installment plan. Why then dont we apply the same philosophy to buying a home? When considering rent versus a mortgage, it is generally advantageous to have the mortgage. However, replacing the five-bedroom home with a nine-bedroom home before the five-bedroom has been paid off simply doesnt fit the model.
3) Invest monthly, and start now! $1,000 invested monthly is a heck of a lot easier than $12,000 at years end. Add to that the concept of dollar-cost averaging and more often than not, youll also earn more over time. Finally, because of compounding, the sooner you get started, even at a small amount, the less time it will take to get wherever it is you want to goeven if that includes a stop along the way for a low-carb tofurkey salad.
2004 Matthew S. Clement, All rights reserved.
Matthew S. Clement is a financial planner and investment advisor representative with Financial Network Investment Corporation, member SIPC. He provides holistic wealth management and retirement planning to individuals and businesses. He can be reached in New York at (845) 942-8578, or by email: ClementM@FinancialNetwork.com.
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