Friday, June 3, 2011, AM | 3 Comments
A lot has been written on the subject of how to create a very basic financial strategy. Some have included finding and using coupons, flea markets, and other discount venues in our daily lives. Some experts have attempted to go deeper in the human mind and came out with something that entails too much details that very few have bothered to follow. They are all good and dandy. What I have gathered here is information to create a top-level financial strategy. Following details is up to the individuals how they want to pursue it.
The young are in the best position to follow steps to create basic financial strategy and build on it. Even coming up with top-level financial strategy can be overwhelming for many. However, it is not as complicated and complex as getting bogged down by details. You are young. You may not have seriously thought about saving for buying a home let alone retirement.
Make sense of your Spending
When you are young, this step may be the hardest to take. But you have to understand how you spend your money. No way you should spend more than you actual earn. Make that a basic mantra in your financial life. If you continually follow it for the rest of your life, you will never get into debt.
When you Borrow, show care for your future
The Western economy runs on credit. Never borrow with your credit cards. Use them for convenience only. Remember borrowing costs money. In general, loans for things that provide lasting and ongoing value are smarter than borrowing for short-term gratification. Make sure the rates and terms of your loans are as attractive as possible.
Don’t borrow for extravagant vacations and expensive clothing. Once you start going on that path, you will never stop. Your debt level would go through the roof and you will not be able to pay it back.
Create consistent strategy for Saving
The easiest way to consistently save is to set up an automatic recurring transfer to your savings account. Talk to your Human Resources representative.
When Investing, set Tolerance level
Investing comes with risks. The higher the risk, the higher (potential) return on your investment. Diversification and investment costs should all be part of your investment strategy. Also, dollar-cost averaging has proven itself to be a good way for investing.
Protect your Family
You should review all your insurance protection once a year if not twice. Your insurance should include homeowners/renters, health, disability, auto, and any umbrella policies you may have. Make sure you have the right combination of coverage and deductibles.
Evaluate how much life insurance you really need. If your family depends entirely on your income, a larger policy may make sense to have adequate income available to them. Compare the benefits and costs of term and whole life policies. For younger and healthy individuals, a term policy may be a better choice.
In a Nutshell
Once you have the basics covered in your financial strategy, then the getting into the details would depend on every individual’s special circumstances.