Dollars With Sense

With the economy so good, its almost unimaginable to have financial difficulties in our business. But by being over extended, establishing poor pricing decisions, and not watching our expenses, we all could run into serious financial trouble. One morning we could wake up and say, "What happened to it all?"

Sometimes, we get so out of control, its like watching the wind blow a stack of papers all over the place. We can either try to chase down, in vain, all the papers that got away. Or, we could put our foot on the stack to make sure nothing else gets away, and you decide to put controls on the things that are left.

As one who use to dabble in the stock market many moons ago, I watch with interest the recent hoopla going on. I'm no longer in the stock market except for a long lost 401k somewhere. But I'd like to share a few thoughts and recommendations that came from two of the country's top financial planners when it comes to having a financial plan.

First, where are you headed? In my opinion, most people should be looking at their overall financial picture and goals. Financial planners, Larry Burkett and John Sestina suggest we approach our financial matters in a very conservative way. Its been said, if you don't know where you're going, you'll probably end up somewhere else. If conservatism is your interest, then the following plan may be of interest.

Set the following goals in order of priority:

GOAL #1 - Set a budget. Know what you spend each month. Take those annual, quarterly, and semi-annual payments and break them down into monthly increments. If income is sporadic, try to look at the past few years and see if you can detect a trend. I.E. - slow cash flow in the winter, boo-koo(beau coup) bucks in the summer. You'll need to match your income (or cash available) with the expenses. And it is vital to have those expenses already funded. Hopefully, your prices are adequate enough to generate the income. There's a saying: "If your outgo exceeds your income, your upkeep becomes your downfall." We may have to constantly revisit the pricing issue in order to reach a level that meets and exceed our basic needs.

GOAL # 2 - It's a good time to look at your present life and disability insurance needs. You may not be able to do what you ultimately need to do, but its important to consider your minimum needs here. Its a good idea to revisit this issue as you reach each goal. After all, your needs will probably change.

GOAL #3 - Get out of debt. (aka - GOOD) This means clear up all credit cards and bank loans that extend more than 30 days. This includes any loan even if tied to depreciating assets like automobiles. By paying a loan off that has an 18% interest rate, you accomplish the same thing as getting an 18% return on an investment. Hard to beat anywhere, and the risk is almost non-existent. If you don't know where to start, compile a list of your debts, and note your monthly payments and total amount owed. Start with paying off the highest monthly payment with the lowest amount owed. By paying this off first, you will free up a lot of cash to get you back on the road again. If you will have a solid, written plan, sometimes your other creditors will either accept a lower monthly payment, or will allow you to skip a payment or two while you are getting back into shape (this doesn't always happen, though). If things are really tight, consider an outside organization that can help you control your payments. You can contact an organization like Consumer Credit Counseling (or look under consumer services in the Yellow Pages for your area.).

GOAL #4 - Reconsider your transportation costs. It has been suggested that if you are in a large auto loan, to sell the vehicle and get into an older, less expensive vehicle. Upkeep on an older vehicle will often be less than your monthly payments on these huge vehicle loans. Even with downtime taken into account due to more frequent upkeep, your overall costs (long term and short term) should be far lower. The secret is in the invested time it takes to shop. The financial planners say it doesn't make sense to buy brand new unless you can afford to drive off the lot and have somebody take $2,000 out of your physical pocket. The bottom line, financially, is whether you are interested in making a status statement, or a conservative financial decision. One is considered short term vision, the other long-term.

GOAL #5 - Establish or increase your savings/cash on hand to 6 months (at least) of your annual salary. This means to have more liquid funds, something that you can get in your hands within a few days (no more than a couple of weeks) without penalties. Conservative mutual funds are probably your best bet here. Although you are receiving a lower interest rate at the bank, having it in a passbook account is far more important than not having it at all. Don't worry about the person who says: "You have your money where? (As they LOL) Don't you know you can get a better rate at...?" What they don't understand is the priority of becoming financially independent. And that you are on a road to get there. As the top financial planners (not insurance or stock market sales people in disguise) will tell you, have money in the bank, FIRST, before ANY type of investing. Once you have your 6 months salary in the bank, KEEP IT THERE! Move on to the next goal. It would be wise to continue to put away 10% of your income at this point into this fund.

GOAL #6 - Pay off your home mortgage. Since this is a fairly safe haven for your money, any payments you make will be compounded by both the savings in interest and the normal appreciation of your home. Paying off you home is really considered the first investment, since it is usually considered as an appreciating asset.

GOAL #7 - Investments. Its not until you have paid off all your debts, stayed out of debt, paid off your vehicle, put 6 months of salary in the bank, and paid your home off, that the top financial planners recommend investing your money into stock, real estate, etc. Frankly, I'm not here yet, so I really don't pay attention to the options discussed at this level. But from what I understand, its important to have priorities in your investment strategy. Start with conservative funds, then move to more risky ones.

The problem with our society, financially, is a general impatience with the process. We seem to want it all NOW. That's probably why we are a nation in so much debt. Also, the investment sales people and the media do a good job in selling the sizzle of investments before we are really ready to invest. I dare to say that most of us are way out of sync with the order of these goals. Maybe it was because we didn't have any objective advice from an knowledgeable outsider. Or maybe it is because we really don't have a real financial plan and we will grab onto anything that seems to get us there quickly. These goals don't have to stand alone and in perfect order. Some can be achieved simultaneously. But the plan is to have 1) priorities, 2) goals and 3) stick to them. What ever the case, here's wishing you all the fortune as you try to build your financial independence.

Ken Anderson

Andersons Famous Painting

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