7 Essential Steps Towards Financial Excellence
Financial Excellence is a money philosophy.
It begins with the WHY - identifying your values, goals and life’s plan. But at the end of the day, we need to translate philosophy into everyday action. In other words… WHAT to do. Here are the Essentials of Financial Excellence that’ll get you started on the track towards financial security so that you can then turn your focus toward growing and developing your wealth. Executing these essentials is the HOW - and that’s what my 1:1 coaching is for.
Essentials of Financial Excellence:
Optimize Your Protection Portfolio - Protecting your most valuable assets is a priority. Never self-insure against catastrophic risk. Protect assets for full replacement value for as long as the asset exists. You and your income are your most valuable assets. Death, Disability, Health Issues or Lawsuits can destroy your wealth potential for you and your family. Optimize your protection portfolio against these risks.
Have an Appropriate Emergency Fund - Access to liquid short-term capital is important for when “life happens.” This layer of ready cash will protect your other assets and give you “permission” to stay invested. When you are starting out, a few thousand dollars saved up is better than nothing. Working your way up to three-to-six months of living expenses is ideal. By the time you retire, you should have one full year of living expenses in liquid short-term capital.
Have No Bad Debt - It’s hard to get ahead paying 18% on a credit card. Bad debt will transfer your wealth over time and reduce cash flow for savings, retirement and lifestyle. It is robbing your future for your todays. If you have “bad debt,” then implement a plan to eliminate it in a responsible and safe manner.
Save 15-20% - If you cannot capitalize by saving 15-20% or more of your gross income, then you’ll never have financial security. The more money you make, the higher the percentage you should save. Once you’ve established your Emergency Fund, you can turn your attention toward mid-term savings and long-term investment goals.
Properly Structured Housing Costs - Don’t be “house poor.” Your Mortgage (P&I) should be 15-25% of your gross income. More than that, you’ll find you must give up savings or lifestyle. Mortgage companies will loan you more than that, but don’t take them up on it. Same goes if you rent - keeping rent below the threshold of 25% of your income will help ensure you can have financial security.
Live on a Budgeted Lifestyle - After you are properly protected, have no bad debt, are saving 15-20%, and have appropriate housing costs, then you can live on what is left and spend your money however you like. You’ve given yourself psychological clearance to live your life without anxiety or guilt. How does that feel?
Legal Documents - Everyone should have executed basic legal documents. This includes a Will, Power Of Attorney, Health Care Proxy and a Living Will. Even young people with no dependents or spouses should at least have a POA, HCP and LW in place. Without these documents, your family would have significant legal obstacles to tackle to take care of your business and health if you were incapacitated. Contact a trusted attorney or legal resource to help you.
These 7 Essentials of Financial Excellence are about establishing Financial Security first. I consider this Phase I of the Financial Excellence Planning Process. Then, you can turn your focus toward Phase II - Growing and Developing Your Wealth Model For The Future.