Seven Steps to a Sound Financial Future

Today, many people find themselves bombarded by a constant stream of financial news from television, radio, and the Internet. Yet, does all this “information age” data really help you manage your finances any better than in the past? Often, the “old-fashioned” practices, such as performing periodic financial reviews, lead to greater success in the long run. Why not spend a few hours reviewing your finances? The changes you make today could result in increased savings. Consider the following seven steps you can take now as part of your financial review:

  1. Analyze your cash flow. When your income is greater than your expenses, the excess is called a positive cash flow. When your expenses exceed your income, the shortfall is termed a negative cash flow.A positive cash flow means that you may have funds you can set aside as savings. A negative cash flow indicates that it may be time to reorganize your budget to minimize unnecessary expenses. 

  2. Develop a plan for special goals. For every financial and retirement goal you establish, identify a projected cost, a timeline (how long it will take to reach the goal), and a funding method (through savings, liquidating assets, or taking a loan). Consider your goals in terms of a “hierarchy of importance.” The bottom, or “foundation” tier, may include emergency funds to cover at least three months’ worth of living expenses. The middle tier may include essentials, such as your children’s education. Place less important goals, such as renovating your home or taking a vacation, on the top tier.

  3. Boost your retirement savings. Pensions and Social Security may not provide sufficient income to maintain your current lifestyle in retirement. Thus, it is essential to identify your retirement needs and plan a disciplined savings program for the future. Maximize your contributions to retirement accounts,and if possible, make “catch-up” contributions.

In accordance with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), taxpayers who are 50 years old, or older, are allowed to make additional contributions to their retirement plans. In 2017, traditional Individual Retirement Account (IRA) and eligible Roth IRA holders can save an extra $1,000 a year, bringing the contribution limit for those 50 years and older to $6,500. Those with eligible 401(k), 403(b), or 457 plans can save an additional $6,000, bringing the total contribution for older individuals to $24,000 in 2017.

  1. Minimize income taxes. Consider taking advantage of all income tax deductions to which you are entitled and exploring ways of reducing your income taxes. For instance, under appropriate circumstances, losses or expenses from prior years may be carried over to the next tax year. A qualified tax professional can help you implement a tax strategy that meets your needs.

  2. Beat inflation. Your income and retirement savings must keep pace with inflation in order to maintain your buying power. This means that if the inflation rate is currently 3%, you need to achieve at least a 3% annual increase in income just to break even. If your long-term savings plan fails to keep pace with inflation, you may be unable to maintain your current standard of living.

  3. Manage unexpected risks. Without warning, a disability or death can cause financial hardship for your family. Adequate insurance is an important foundation for your financial plan—it offers protection to help cover potential risks and liabilities.

  4. Consult your financial professional. In today’s complex financial world, everyone needs help making informed decisions. Planning can help ensure that your financial affairs are consistent with your current needs and long-term goals.

A financial review can help bring focus and clarity to your overall financial picture. In the future, you may wish to modify your plans according to changing goals and circumstances. By reviewing your finances periodically and tracking your progress, you may be in a better position to achieve financial independence and realize the retirement of your dreams.

 

 

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