14 Oct LITTLE WAYS YOU MIGHT IMPROVE YOUR FINANCIAL LIFE
This is the year. You can make 2011 the year you alter your financial life for a better financial future. Let’s look at some steps you might think of taking with the goal of financial freedom in mind.
No, we’re not talking about those ridiculously obvious steps the usual articles recommend, like “write your goals down” and “set a budget”. Let’s go past the clichés and get into the real issues.
Look at your income source, your expenses and your debt. How do you earn income? If you earn it from one source, is there effectively a ceiling on it, or is there real potential for your income to rise in the next few years? Now look at your core living expenses, the ones you can’t avoid (such as a mortgage payment, car payment, etc.). Can any core expenses be reduced? Investing aside, you position yourself to gain ground financially when income rises, debt diminishes and expenses stay (relatively) the same.
Maybe you should pay your debt first, maybe not. If you are a business owner or a professional, for example, you’ll likely always have some debt. Your ultimate goal should be to build wealth – and you can plan to build wealth and reduce debt at the same time.
Some debt may be considered “good” debt. A debt may be “good” if it brings you income. For example; if you buy a rental property, you’re paying a mortgage, but that’s considered a “good” debt because you’re getting passive income from the rent payments and there is the possibility the property may increase in value. Credit cards are usually considered “bad” debts because of the nature of items that credit cards are used to purchase.
If you’ll be carrying a debt for a while, put it to a test. Weigh the interest rate on that specific debt against your potential income growth rate and your potential investment returns over the term of the debt. If the interest rate on that debt looks like it will outpace your income growth and investment returns, then you should really think about paying that debt down fast, because you can’t afford that interest rate.
Of course, paying off your debts, paying down balances and restricting new debts all works toward improving your FICO score, another tool you can use in pursuit of your financial goals.
Implement or refine an investment strategy. You should try not to refrain from investing, even when the bears are out. You’re not going to retire on the relatively small elective deferrals from your paycheck; you may retire on the growth or interest that those accumulated assets earn over time compounded over many years. Consistent investing, this year and in years to come, has the potential to help you improve your financial life. As a reminder, investing involves risks and the potential for your assets to lose value.
Manage the money you make on your way to meeting your financial goals.
If you simply accumulate assets, you may have money just sitting there open to different types of risk – inflation risk, market risk, even legal risks.
Don’t neglect the risk management strategy that could be instrumental in helping you retain any wealth. Your after-tax return may be more important than your investment return, so risk management should be part of your overall financial picture.
You may want to request assistance from a financial professional for the wealth you are growing. A financial professional will help to educate you about the principles of wealth building. You can draw on that professional knowledge and assistance this year – and for years to come.
Kevin M. Nast is a Financial Planner and the President of NastGroup Financial in Northville, MI 48167. He may be reached at nastgroupfinancial.com or 248.347.1888. Kevin also services clients in Auburn Hills, South Lyon, Westland, Northville, Plymouth and the surrounding metro Detroit area as well as 13 additional states across the US.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.