As the weather cools and the leaves turn, many of us look forward to one thing: no, not pumpkin spice everything. Football. In the game, the teams with the strongest fundamentals typically put themselves in the best spot to win. According to legendary coach Vince Lombardi, “some people try to find things in this game that don’t exist but football is only two things – blocking and tackling.” We can easily pivot to personal finance to discuss what represents the blocking and tackling in that arena.
The most basic principle in personal finance is the idea of positive cash flow – spending less than you make. In fact, this is the cornerstone of every other area because it frees up money to be used in the most productive manner. If your budget is in need of a revamp, focus on the big ticket items first (car payments, mortgage/rent, etc.). This is typically not something that is immediately actionable as those payments are either fixed in some fashion or have the potential to even increase. Whether it’s refinancing or downsizing, evaluate your options to keep these cash hogs under control. On the other side of the equation, bringing in more money frees up discretionary income to be deployed elsewhere. Again, this is something that might not be immediately actionable, but consider an investment in yourself by way of certification or training to improve your future income potential.
A corollary to the last paragraph would be to focus on saving with a purpose. Each dollar and each account should have a designated job. People get tripped up when they get their priorities mixed. For example, putting every last dime of your savings in your 401(k) leaves your finances vulnerable to an unexpected incident that forces you to take a loan in what should be an easily avoidable situation given proper planning. Diversification of your account types and investment strategies allows for flexibility for whatever life throws your way. Tying the last two paragraphs together, how much is a good target to save? We typically recommend saving at least 10-20% of income. It’s not easy and it won’t happen overnight, but it gives you a target to shoot for.
In the same spirit that the offensive line protects the quarterback, you want to make sure your finances are protected. Everyone probably understands the importance of life insurance for making sure your family is protected in unfortunate circumstances – what type and how much is something that should be reviewed regularly. An often overlooked protection mechanism is disability insurance. This is sometimes scoffed at because there is a perception that we can just “power through it.” That might be the case for a broken limb or surgery, but diseases like cancer are the leading cause of disability claims. A disability would have the magnified effect of reduced income or total loss coupled with a mountain of medical bills.
A football coach will meticulously prepare a game plan for their upcoming opponent to ensure that every situation is accounted for. In that same vein, your finances deserve the same attention with focus on the fundamentals.
For more information, visit www.contwealth.com.
David Rath, CFA is the Director of Portfolio Strategies at Continuum Wealth Advisors in Saratoga Springs.