Having recently started my career at Lighthouse Financial Advisors, I am working to obtain every bit of knowledge I can from Robert and the LFA team. I am very fortunate to have this opportunity and aspire to receive my CFP accreditation in the near future. It is important to me to not only “learn from the best,” but to follow the Lighthouse principles in my personal life.
One of the tools that we use when meeting with our clients is the Financial Life Cycle, the seven stages used to determine your financial position. I am currently in the first of the seven stages – “Building the Foundation.” In this first stage, my primary strategy has been to follow the “Five Fundamentals of Fiscal Fitness.”
1.) Save at least 10% of your annual income:
As far back as I can remember, my mother had always taught me the importance of saving and to appreciate money. I always wanted to see how much I could fit into my piggybank! A few years ago I began using an Excel spreadsheet to better track my finances. Once I receive my check I automatically try to put at least 10% into a separate bank account. This helps keep myself from “wasting” money on unnecessary things that most people in their twenties do.
2.) Have sufficient liquidity:
As my life progresses, the number of bills that I am responsible for increases – so it certainly makes saving money a lot harder. As we suggest to clients, I try to have at least 10% of my annual income in a cash reserve account, with another 20% in a secondary reserve. It seems crazy, but nothing in life is guaranteed and it’s always important to have a backup plan in case something unexpected happens.
3.) Fully fund your pensions:
Just the other day Robert called me into his office to help with my initial investment in my first 401(k). It does not matter what age you are, you should take advantage of tax deferred savings plans, especially any that your employer will match your contributions.
4.) Have the right size house:
For most middle income Americans, your home is the most significant investment you will ever have to make. We recommend buying a home 2 ½ – 3 times your annual income and holding a mortgage of 50% or more of its value. If the value of the home reaches 100% to 125% of your income, sell it and trade up. I have been working hard since graduating college and plan to take the leap to home ownership within the next year or two.
5.) Pay off all credit cards and consumer debt:
It is important to be aware of the differences between bad debt, good debt and acceptable debt. Avoid the bad, use the acceptable debt wisely, and take advantage of the leverage of good debt. Through high school and most of college, my mom advised me not to open a credit card (and as I reflect, I realize she had valid reason). I am now grateful that I didn’t “ruin” my credit at a young age, as many friends have done. When I did start using a credit card, I always made sure that I never purchased anything that I couldn’t afford to pay off in the next month. As a result, at 23 years old, I was able to purchase a car in my own name.
I hope this information has been useful, as well as insightful, as I know many of our clients have children and grandchildren in a similar stage of life. I encourage you to discuss these important “5 Fundamentals of Fiscal Fitness” with your loved ones. My current success would not have been possible without the help of many great people in my life – especially my parents, Robert and Donna.
Wishing you all a healthy and happy holiday season!
