Let”™s face it: Americans are preoccupied with wealth accumulation. While we have turned around our negative saving rate of 2006, we still struggle with the messages that remind us of what we should be doing to build our financial future. Unfortunately, for many, the lessons learned are rarely applied. Somehow the most fundamental tenets of wealth building seem to elude us.
Here are 10 recommended routes you can follow on your road to financial freedom. When applied, they can help anyone improve their current financial position.
1. “Know thyself.” Focus on your unique abilities, whatever they are, and delegate the other tasks to someone who has those unique abilities. Focus on adding value to each and every work challenge. Focus on emerging trends in your industry where you may apply your skills.
2. Manage gratification instincts. Immediate gratification is just that ”“ immediate. It does not have a long-lasting effect. Our greatest challenge is to keep that feeling at bay. (Given our cultural benchmarks for success and constant reminders of what we really need ”“ it”™s not easy, but it is doable.)
3. “Where do I stand today?” The best first step is to truly know your current financial position. It will help you see the big picture if you are honest with your monetary situation.
4. Know the economic impact of using pre-tax vs. after-tax dollars. We all waste precious disposable income and lose significant tax-deferred and tax-free dollars by not learning this distinction.
5. Manage credit as if your future depends on it, because it does. Taking on debt-defying risks because you can (think housing bubble) is not a prudent approach to leverage. De-leverage your balance sheet until you know your net worth.
6. Use assets for long-term results. Keep your eye on your asset allocation pie. The top five money managers and asset classes of 2005 are not the same top five money managers and assets classes of 2010. Diversification does work.
7. Prepare for the unexpected. The conundrum of deciding which type of insurance coverage to buy and how much can be daunting. Know the consequences of NOT having specific types of insurance coverage.
8. Learn from the inevitability of cycles. We have had “bubble trouble” in the past and we will have other business and economic cycles again in the future.
9. Accept the competitive realities of globalization. For all of you who have visited Disney World ”“ it truly is “a small world after all.”
10. Pull all of your issues together. Create a holistic planning model using all of the available human and informational resources available to you. You will make measurable progress.
There are a wide range of free planning tools you can use to help apply these concepts. The website, 360financialliteracy.org is a great resource you can use to manage life stages and other major financial challenges. In addition, subscribe to feedthepig.org. It”™s a related website developed by the AICPA and the Ad Council designed to help Americans save, a fun website and takes the edge off of a lot of challenging topics.
While you may not be financially wealthy yet, when you master these concepts, and systematically apply them, they will serve as an invaluable financial GPS.
Thomas Ammons is president of Affinity Advantage Financial, part of Lexco Wealth Management, which has offices in Poughkeepsie, Middletown and Tarrytown. He can be reached at (845) 695-1000 or tomammons@affinityfinancial.com.
