7 Key Steps to Building a Strong Financial Foundation

“People who want to get rich quickly will not get rich at all. There is nothing wrong with getting rich slowly.” –Warren Buffet

Mr. Buffet had it right when he said that; it is in most people’s grasp to get rich slowly if they don’t procrastinate and can create a solid foundation to build wealth upon.

Here are seven tips to build a solid foundation, just in case……life happens.

Creating a budget is almost always the first step to any plan. Proper budgeting is important when beginning a savings plan. You need to know not only what your cash flow is, but if and where you may be wasting money, and what you need to cut to protect yourself in a financial emergency. If you work with a financial advisor, ask them if they have software you can use to keep a budget and track your expenses; Conestoga Wealth Management offers this to all clients.

Do you know when your next emergency is coming? Of course not, otherwise it wouldn’t be an emergency. How are you going to pay the bills in the event of a sudden job-loss, an illness in the family, unexpected repairs, or an even worse crisis?  For this you need to have a stable and liquid emergency fund.

This fund is not to be used for your expected bills; it is for what its title connotes: emergencies. It should be in a money market type account, and a minimum of 3 months of your expenses (If you don’t know that number, refer back to your budget in step # 1) but optimally 6 to 12 months.

Put aside money for later years on a consistent basis; the earlier you do it, the better. After you pay for the ‘must’ things in life like housing, food, etc., it’s time to adequately fund your retirement vehicles or other long-term savings account; definitely do this before you pay for eating out, vacations, Starbucks and other non-essentials. Someday you will want to retire, and this will be the account(s) that will generate your salary in retirement.

Get insured! We can’t eliminate risk, but we can mitigate the negative effects of bad things happening. And it’s not just health and Life insurance I’m talking about, but Disability insurance to protect your paycheck during your working years and Long Term Care coverage to protect your assets for your later years.

Don’t guess at how much insurance you need by talking to an insurance salesman, or even worse by doing it yourself over the internet.  Make sure you speak to a qualified financial planner first to gauge the correct coverage for you and your family.

Credit cards are a very useful and almost essential tool in modern life, but need to be used carefully. It can be very easy to overuse credit and get suddenly overwhelmed. If you find you can’t pay off your balance each month, the interest can snowball. At this point, it’s important to get out from under these huge interest costs.

Financial Independence doesn’t mean you have to go it alone. Ask for help to make your financial plan.  How do you know where you’re going and how to get there if you don’t have a roadmap?

Working with a financial planner not only will help you to answer these questions, but statistics show that families that work with financial planners are more likely to be saving in a retirement plan and at a higher rate than those without an advisor. In addition, consumers who had financial advisors were more confident they will have enough to last throughout retirement than their counterparts* (Also, See my other article here on the value of an advisor here).

Finally, do something you love. We all have to do something in life. If you can make your job more than just work, make it something you love, that way earning money just becomes easier.

*=http://www.limra.com/Posts/PR/News_Releases/LIMRA__Advisors_Positively_Influence_Consumers__Behavior_and_Sentiment_Toward_Preparing_for_Retirement.aspx?LangType=1033