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Take control of your financial future

Wayne Farlow //September 1, 2011//

Take control of your financial future

Wayne Farlow //September 1, 2011//

The economy, government spending and debt, unemployment, housing foreclosures and our banking system all contribute to a fear of the financial future. These fears are all outside of our control. However, we can control many decisions related to our own financial future.

Financial Abundance Guide (available free at ) identifies many areas of personal finance that can be controlled. I also developed the Seven Steps to Financial Abundance to help people reach their financial goals. With so much fear of the financial future, following the seven steps can help increase our power to control our financial future.

“Spend less than you earn,” is the required first step. Over a 40 year career (age 25 to age 65), assume that your average income is $80,000 (in 2011 dollars) and the annualized investment real rate of return is 5 percent. Saving 10 percent of income ($8,000) each year will produce savings of over $1 million (in 2011) dollars at age 65.

By “maximizing your financial resources” (step 2) , savings can be increased with no negative impact on spending. If a company offers a 4 percent of salary match with their 401(k) plan, by contributing at least 4 percent of salary, this amount is matched by the company. Using the previous example, annual savings are increased from $8,000 to $11,200, increasing the savings available at age 65 to almost $1.5 million.

“Minimizing your taxes” (step 3), also provides additional savings with no impact on spending. Financial Abundance Guide provides many tax savings techniques available to people of all income levels. One example is a spousal IRA, allowing a non working spouse to contribute $5,000 per year to an IRA. For a couple paying 25 percent in federal taxes and a 5 percent state income tax, a $5,000 IRA contribution would yield $1,500 in annual tax savings. Continuing with our example, the additional $1,500 in annual tax savings would provide almost $1.7 million in 2001 dollars by age 65.

“Managing your investments” (step 4), can significantly increase investment returns. This may require the help of an investment professional. If so, carefully choose an investment advisor and be wary of anyone providing “free” advice. A “free” advisor must be compensated through commissions on the investment products they sell. Fee only advisors are compensated by the fees they charge to manage investments. Continuing the above example, if the real rate of investment return is increase by only 0.5 percent, the couple would have almost $1.9 million at age 65.

Using the simplistic assumption that a couple, at age 65, can withdraw at least 4 percent of their investments each year and never run out of money, $76,000 (in 2011 dollars) can be withdrawn each year throughout retirement. Since their previous annual expenses were $72,000, with $8,000 per year in savings, even with no Social Security or other retirement benefits, our couple can more than maintain their lifestyle throughout retirement.
Fear of the unknown often produces a sense of financial scarcity.

“Protecting your financial resources” (step 5), through appropriate, lower cost insurance products can help keep this fear at bay. An insurance product that is often overlooked is a $1 – $2 million umbrella liability policy. In our litigious society, one may be sued because someone was hurt on their property or by a car driven by a family member. For very little money, peace of mind can be secured by adding an umbrella liability policy to your auto or home insurance policy.

Financial planning helps “control your personal finances” (step 6). There are many available resources to help you produce you own financial plan. If you have neither the time nor interest in financial planning, engage a fee only Certified Financial Planner (CFP®) who will listen to your concerns and provide a comprehensive plan that enumerates the options available to meet your financial goals. A financial plan helps increase control over personal finances. Planning will reduce the fear of scarcity, providing more financial security on the path toward financial abundance.

“Have faith in continued abundance” is the seventh step. Implementing the first six steps addresses what you can control in your personal finances. Faith that financial abundance will continue helps eliminate the doubts and fears of the unknown often caused by events over which you have no control.

Financial abundance is a lifetime pursuit. There will always be ups and downs in the economy and markets. By applying the seven steps and seeking appropriate outside support as required, you will be on the pathway toward financial abundance.

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