Thursday, December 27, 2012

Do it Yourself Financial Planning in 15 Easy Steps


1) The first step is to know what is your personal objectives and goals by using a financial planning session(s)?

2) What is your short term, medium term and long term life goal(s)?

3) If money was not an object where would you see yourself in 5, 15 and 30 years from now? (Hint: it can be career, where you like to live, education, car, house, ect.) 

4) Prepare a budget of current expenses, and included all sources of income. How would you rate yourself compared to income below budget, at budget, or above budget?


6) Now complete a second budget showing the amount you reduced from your original budget. If you’re still meeting or above budget, you will need to find other sources of income or further ways of cutting of expenses. If you’re below or at budget you can move to the next point.  If you still can not move your budget lower, I do offer personalized coaching on my site at:  http://www.columbusfinancialcoach.com/Services.html

7) Congregations, you are ready for the next step. You must take at least 10% from your income each pay period and place 6% in retirement and 4% into a general fund which includes emergency's, and vacation fund. I would recommend one to increasing this account each year and every year by 1% or 2% to your retirement fund. If additional fund are available to give to religious origination, or/and charities do so to 10% of income. You will gain a tax advantage and do some good in your community. What if, you do not have the available funds? You can give your labor and donate your time to these organizations. There is a note in my process of reading the most success people have always gave money and/or gave their time. This relationship with the law of attraction, that giving will help you back in the future. See my blog post on Law of Attrition: at:


8) Things happen, you will need to have insurance to cover unexpected liabilities, including health, auto, home, life and disability insurance. Remember getting the lowest cost insurance maybe not cover you in the event of accident or death, or disability. If money is a concern rather buy employment based life and disability, rather then not having enough coverage or not having no coverage. Once you improve your situation buy a non-employment related insurance policy or use the employment to be the gravy and not to meet liability minimums.   
9) What life insurance is better for me Term or Cash Value?  I would say most people that cash value is not needed in most cases. I would first max out my IRA, or Roth IRA, or 401K, or similar retirement program, before even thinking of going for a cash value policy. In most cases a 30 year term product will product you and your family so you can build enough funds by investing in your personal savings, and retirement plan. Most insurance agents disagree with this way, sure they are losing money. The facts that most fixed rate cash value insurance polices are making about 4.5% -5.5% great for today. But the stock market has an average return of 12%. So, using simple logic how are you better going after 5.5% vs. 7% or 9% return in a bad year? Yes, there is risk; there is risk going to safe as well.  

10) Where are going to put your money to grow? If your employer offers a 401k, or a similar retirement program, and give you a match this is the way to go. At least take the money the employer is giving you and match to the max. You would be surprised how many people do not take advantage of this free money. For most people, the best investment is to have the fund coming out your pay check, and have an allocation table to follow to insure proper diversification see:
http://www.bankrate.com/brm/news/retirementguide2007/20070501_asset_allocation_chart_a1.asp. This is basic investment advice; I have written articles on advanced investment strategies read more at: http://columbusfinancialcoach.blogspot.com/2012/12/the-strategies-from-genuss-of-investing.html  There are different allocation tables based on your age, and your target date for retirement. Younger you are the more you can take more risk and as you get closer to retirement you slowly decrease risk, not end all risk.  

11) What do you do with you 4% start of placing the money in bank or credit union account automatically from your pay check to be placed into you’re saving account. Once your funds have reached a high enough amount, you can look at other options, like CD’s short term, investment account under a money market, bonds (Government, & Corporate), treasury inflation protected securities (TIF’s’) conservative allocation investment accounts (mutual funds or EFT’s) for this type of saving avoid anything high risk! This is a short term account, and you need low risk investments.  Do not forget to leave at least $500, to $1000 to pay for urgent situations in your bank or credit union account.    

12) What is better for me pretax retirement (40lk/traditional IRA) or post tax retirement Roth IRA/Roth 401k)? I recommend everyone to go pretax up to there match. If you go pretax after this or Roth is a personal choice based on your situation. Is it better to pay taxes now or later? There is a feeling that we have very low taxes right now and it is better to take advantage of the Roth.  There is another way of looking at this. I am going to pay taxes for the next 30 or 40 years without any benefit. Now, I personally have pretax up to 10%, after that go with Roth. I believe that having 2 pots of money will hedge for what the future may bring. If may need to hire a CPA or Tax lawyer to help you find ways to reduce the taxes in the future. Besides we do not know what the market will look like in the future. I personally believe we can take out the minimum amount out of a pre-taxed fund each year, and paying the lowest tax bracket. Beside the government can resend the Roth if it not working out for it best interest.   

13)    You earn a 0% on equality, so why not take out a 30 year mortgage, or 5 year car loan. Do not get return on equality confused with inflation. Most people see there house values go up this is ROI is the inflation not the equity working for you. You should put the difference in your retirement account. Like I said before you can make 12% on average on stock market and only 0% on your equity. What is the point paying it off faster? Now if you have high debts over 12% interests you should pay these off sooner with your additional leveraged money. Plus you still receive a tax break on mortgage interest and taxes. The same goes for student loan, why pay back a low interest low off sooner? When you can make more as an investment? This is a concept the wealthy used call others peoples money or OPM.

14) You should have a last will drawn by a lawyer. A simple will can save part of your money going to the government, and costly court costs later.

15)  One trick I received from Primerica: You shouldn’t hold back you payment to make one payment. For example if you are paid bi-monthly (Paid once at the end of the month and paid on the 15th of the month) rather make two smaller payments. Make a payment early and make the second on your next pay cycle. This will reduce you interest. Since most loan calculated on daily interest you are best to pay them off using each pay check cycle, even if it one half of a payment at a time. This will work for credit cards, student loans and car loans. It tends not to work for mortgages because most of the home loans are government backed, and have a different system of calculation on the interest. Last note, to avoid some troubles later, check with your lenders to insure that making a split payment will not cause issue, how your loan is proceed.   


Created by Derek P. Bliedung
The Columbus Financial Coach
The Art of Saving Money & Making Money