Back To The Basics: Indicators of a Healthy Financial Plan

In Articles, Back to the Basics, Estate Planning, Investment Management, May 2018, Retirement Thinking by Dave Bensch

When you go to your Primary Care Physician for your annual check-up, there are many factors that determine your level of health – height, weight, blood pressure, and pulse are some common examples. There are some people that even take it to the next level and get blood work or additional tests to get an even clearer picture of their health.

Although it’s fun to measure the size of your nest egg, the truth is: your retirement account balance is just one indicator of a healthy financial plan. We’d like to insure that you’re considering all aspects of your financial life (and maybe give you a ‘prescription’ or two, if necessary). Although this is not an exhaustive list, we believe these five areas are critical to increasing the success of your financial plan:

1. Budgeting – The foundation of any financial plan is a budget. Some people do a monthly budget, and others do an annual budget. Either way, having a realistic idea of how much income you have per month/year and how that income is being used on expenses is something we highly recommend. If you don’t have any experience with budgeting, we suggest that you take one month and write down all of your expenses in a note pad – everything from the electric bill to the latte at the coffee shop. By being more intimate with your expenses, you can determine which ones you need to eliminate or cut-back to best match your income.

2. Debt Reduction Plan – Your most powerful wealth-building tool is your income. When that income is earmarked for consumer-debt (credit cards, student loans, auto loans, etc.) it cannot be used for wealth-building. By intentionally paying off your debt earlier than scheduled, you will free up that income to work harder for you and as a side benefit, you will experience a sense of accomplishment and peace by not owing money to anyone.

3. Emergency Fund – After you’ve tracked your expenses for a month you should know how much income you need to fund your lifestyle. For some people, that number is $2,000 and for others it could be $10,000. Regardless of the number for your monthly expenses, you should have three-to-six months of that number set aside in a savings account at your bank or local credit union. If your living expenses are $3,000 per month, then you would try to have $9,000 – $18,000 in a safe account that’s only used for emergencies. We also encourage you and your family to define an emergency – it’s going to be different for everyone, but make sure you’re on the same page with your loved ones (and if you’re single, write down what qualifies as an emergency).

4. Charitable Giving – We believe that giving a portion of your income to a church or charity is an essential part of a healthy financial plan. Some faiths have clear instructions on giving, but regardless of your religious affiliation, giving a piece of your income to a worthwhile organization will not only help the church or charity do good work, but also help you stay involved in your community and show you the beauty of helping others.

5. Insurance Audit – There are a lot of insurance options out there and having a solid insurance plan will be your best defense against the many ‘viruses’ that will try to infect your financial plan. At a minimum, the insurances we recommend are:

• Term Life Insurance

• Long-Term Disability Insurance

• Auto Insurance

• Home/Renters Insurance

• Health Insurance

• Long-Term Care Insurance
   (for readers over the age of 60)

Please make sure you understand how each insurance policy works, as there are nuances in each category.

We hope that you will take this financial check-up seriously, and if you need additional guidance in any of these areas, please let us know.