Eight Commandments of Building a Strong Financial Foundation

commandments financial foundation

commandments financial foundation

1. Compare your monthly income versus your monthly expenses.  Establishing a spending plan can help you get a hold of your financial situation.  Live within your means and do not spend more than you make!

2. Pay off credit card balances each month.  If you have current credit card debt, attack it each month by paying more than the minimum payment and go for the smallest balance first.  When the first card is paid, add that amount to the payments on the second card.  Repeat for the next card, and keep going until you’ve paid them all.

3. Create a “safe and sound” fund.  Build a cash reserve of 6 months (or more) of your living expenses.  It may be a good idea to use a separate account as a 2nd tier cash reserve that may earn a bit more interest.  Check out bankrate.com  for the latest interest rates.

4. Save, save, save.  Save at least 10% of your income.  If you can save more, then do it!

Take advantage of your company’s retirement plan. You won’t have to pay taxes each year on your contributions. They can continue to compound without the burden of paying taxes until the money is taken out in retirement.

Open a Roth IRA. Distributions from the Roth IRA would be tax free in retirement.  Attempt to maximize contributions each year. Income limitations apply.

Begin a non-retirement investment portfolio. Some large mutual fund companies have a $1,000 minimum investment to open an account. Open it and invest at least $50 a month.

What to invest in? Avoid load funds. You can get something similar at many large mutual fund companies without paying loads. Look for investments that charge minimal fees for funds with good performance compared to their peers, and funds that allow you to liquidate whenever you choose without any penalties. Match your goals to your investments. Diversify – have the right mix of cash, bonds, and stocks. Keep in mind that you may need your money to last 30+ years throughout retirement.

5. Set up 529 College Savings Plans for each of your children or grandchildren.  Each year Morningstar ranks the top plans.  You can open the plan in the child’s name as soon as the child has a social security number.

6. Ensure that you have adequate life insurance.  If money is tight, consider term life insurance for low premiums and high death benefits for the years when you require the most coverage, like when the kids are in school.

7. Your ability to earn a living is most likely your most valuable asset.  Ensure that you have proper disability coverage, as well as other areas (homeowners, auto, liability, etc.).  Have an independent broker review all of your insurance coverage.  They can help determine if you are paying too much and if you have the right amount of insurance for your unique situation.

8. Establish three estate documents (a will, a health care power of attorney, and a durable power of attorney).  Be sure that you name beneficiaries on any retirement account or annuity.  In addition, ensure that you have named beneficiaries on your employer-sponsored retirement plan.

This is general advice for people interested in building a strong foundation for financial success.  Some items may not apply to you specifically.  If your situation is more complex, you should meet with a Certified Financial Planner such as those at Vermillion Financial Advisors.


Eight Commandments of Building a Strong Financial Foundation

Note: The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Please remember that past performance of investments may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this post serves as the receipt of, or as a substitute for, personalized investment advice from Vermillion Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed within this newsletter to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.

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