Financial “Check ups” Vital to Long-term Financial Success

September 21, 2010by Hoy Grimm0

– Beyond cliché’s, such as “A penny saved is a penny earned” and “Waste not, want not,” what does it mean to be financially healthy?

“The simplest approach is to evaluate whether you live within your means,” said Andy Oakes, financial adviser for LeConte Wealth Management. “When clients come to us for investment advice, it’s a lot like going to the doctor. They ask questions like, ‘Am I financially healthy?  If not, how do I get well?  And, how do I stay that way?’”

To find out how to live within those means, Oakes suggests a monthly budgeting strategy. Budgeting is the monthly process of reconciling income and expenses.  No doubt a part of those expenses will include debt, like a car payment or mortgage.  A healthy budget limits debt repayment to one third of income.  For a family earning $5,000 per month, this would mean that their debt payments shouldn’t exceed $1,650 per month (Example could be a $900 mortgage, a $400 car payment, $200 in credit card bills, and $150 student loan payment).  That leaves two thirds (or $3,350) for living expenses, taxes and savings.

“Managing your monthly budget can be difficult and frustrating,” said Oakes. “One of the most important aspects of controlling your budget is to determine where your money is going.”

Click on the Calculators section under the Financial Planning tab for free financial tools and calculators.  The Home Budget calculator helps build a monthly budget.  By entering income and monthly expenditures, you can see how much is left to save and where your money is being spent.  In addition, you can click the “View Report” button to compare your budget breakdown to our targets, which can help identify areas for improvement.  Check out the Net Worth calculator to determine the value of all of your assets minus the total of all of your liabilities.

Financial health, like physical health, is not just about today; it is about tomorrow.

So what does “long term” mean exactly?  From a financial perspective, it means a goal that will require a substantial amount of money to fulfill a savings goal at some point in time, such as five years from now.  This is the hard part of budgeting, because it involves delayed gratification or paying for something today that may not seen for five, 10 or even 30 years.

Unfortunately though, most Americans are disconnected from how their savings are invested, and this puts their long-term financial goals at risk.

So, if you are doing the right thing by saving, how can you be a good steward with investing?  LeConte Wealth Management offers the following simple guidelines for creating a “purpose-built portfolio:”

  • Align. Investments should be aligned with your goals.  If your goal is to create retirement income, bonds paying regular interest may be considered as part of your portfolio.
  • Diversify.  Through exposure to different types of holdings, you may be able to reduce risk.  Investing in one stock is likely more risky than investing in one mutual fund that invests in two hundred stocks. Diversification does not assure a profit or protect against a loss in declining markets.
  • Monitor.  Periodically check your progress to ensure that you are on track to achieve your goals and that what you invest in is performing in line with the overall investment markets.

Hoy Grimm

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