As the weather cools and the leaves change, many of us hope for one thing: no, not spice everything up with pumpkin. Football. In the game, the teams with the strongest fundamentals are usually placed in the best place to win. According to legendary coach Vince Lombardi, “some people try to find things in this game that don’t exist, but football is only two things: blocking and tackling.” We can easily jump into personal finance to discuss what blocking and entry into that field represents.
The most basic tenet of personal finance is the idea of positive cash flow: spending less than you earn. In fact, this is the cornerstone of all other areas because it frees up money to be used in the most productive way. If your budget needs a revamp, focus on the important items first (car payments, mortgage/rent, etc.). This is usually not something that can be triggered right away, as those payments are either fixed in some way or have the potential to even increase. Whether it’s refinancing or downsizing, weigh your options to keep these cash hogs in check. On the other side of the equation, bringing in more money frees up discretionary income to use elsewhere. Again, this is something that might not be immediately actionable, but consider investing in yourself through certification or training to improve your future earning potential.
A corollary to the last paragraph would be to focus on saving for a purpose. Every dollar and every account should have a designated job. People make mistakes when they mix up their priorities. For example, putting every penny of your savings into your 401(k) leaves your finances vulnerable to an unexpected incident that forces you to take out a loan in what should be an easily avoidable situation with proper planning. Diversifying your account types and investment strategies allows flexibility for whatever life throws at you. Putting the last two paragraphs together, how much is a good goal to save? Generally, we recommend saving at least 10-20% of income. It’s not easy and it won’t happen overnight, but it does give you a target to aim for.
In the same spirit that the offensive line protects the quarterback, you want to make sure your finances are protected. Everyone probably understands the importance of life insurance to make sure your family is protected in unfortunate circumstances – what kind and how much is something to review regularly. An often overlooked protection mechanism is disability insurance. This is sometimes mocked because there is a perception that we can just “get over it”. That could be the case with a broken limb or surgery, but diseases like cancer are the leading cause of disability claims. A disability would have the magnified effect of reduced income or total loss along with a mountain of medical bills.
A soccer coach will meticulously prepare a game plan for his next opponent to ensure all situations are taken into account. In the same way, his finances deserve the same attention with a focus on fundamentals.
For more information, visit www.contwealth.com.
David Rath, CFA is the Director of Portfolio Strategies at Continuum Wealth Advisors in Saratoga Springs.