Client Resources > Current
Six Simple Steps
Marnie Aznar, 12/2003
Although financial planning is not simple, its complexities should
not deter you from taking some important steps in your financial
life. The following tips are generalizations that will change as
your life evolves, but should help you get started on the right
1. Pay off your credit card debt!
You are probably paying between 10 and 21% on your credit card.
If you have $10,000 of credit card debt at a 20% interest rate and
you are paying $200 per month towards the balance, it will take
8 years to be debt-free and the $10,000 purchase will ultimately
cost you almost $20,000. You should attempt to only put on a credit
card what you can afford to pay off at the end of the month. If
you do have credit card debt, you should try to put yourself on
a payment plan to get rid of it as soon as possible.
2. Establish an emergency fund!
You should set aside approximately three to six months of living
expenses in a liquid account such as a money market mutual fund
or high yield savings account. Once you have paid off your credit
card debt and established this emergency fund, you should begin
to think about longer-term investments.
3. Use tax-deferred investment plans!
If you work for a company that offers a retirement plan and your
employer offers a match, you cannot afford not to contribute to
the plan. If your employer offers a match of 50% up to the first
6% contribution and you contribute $100 (which happens to be 6%
of your paycheck), your employer will give you $50, an automatic
50% return on your money.
4. Take manageable risks with your investments!
Although each individual has a different risk tolerance and a different
time horizon, a certain amount of risk is inherent in every portfolio.
Look for good quality, inexpensive mutual funds in order to achieve
diversification. There is a rule of thumb that says you can figure
out how much to invest in stocks by subtracting your age from 100.
So, if you are 35, the rule of thumb indicates that you should invest
approximately 65% of your assets in equities. This is a good starting
point, but should certainly not be the end of your asset allocation
5. If you need life insurance, consider buying term insurance.
If you have no dependents that would be impoverished by your untimely
death, you may not need any life insurance. But if you do, you most
likely need some life insurance. Term insurance is far cheaper than
cash value insurance and will allow you to afford a much greater
6. Fees and expenses count!
When you are evaluating different investment opportunities, don't
forget to factor in the fees and expenses. The higher they are,
the higher your returns will need to be to compensate. Be aware
of how much you are paying to invest. When purchasing mutual funds,
find out if you are paying a "load" or a sales charge.
Find out if you will be subject to a sales charge should you decide
to sell the fund within the next few years. As the expenses increase,
they can dramatically reduce your overall returns over time.