It is winter time and that means people work extra hard at staying healthy, though this season seems to have started of quite inauspiciously as many have already been racked with a viral strain. Financial health and management are huge topics of concern these days for investors of all portfolio sizes, as well. Winter is often a slow season for activities, so, with the fiscal crisis looming, now may be a good time to see if your portfolio is healthy and you are getting the financial management your investments deserve.
What is Financial Health?
Simply put, financial health is the description of the state of one’s finances. The financial health of a portfolio can be strong, lukewarm, or in decline. A measuring rod may be whether the account has grown, is in a state of flux, or has withered to any degree. Ultimately, the financial health of a portfolio has to be defined by the holder of the portfolio. While no investor likes to see losses, some may accept modest one’s based on the activities and emphasis of their investments that may include high risk ventures.
Most investors, however, consider a healthy financial state one in which their money grows. Lately, since 2008, some investors are happy not to have lost money in their portfolio and just maintain the same value. This may be a cause for celebration as the average American’s worth declined from around $120,000 in 2007 to around $87,000 today. This is in great measure reflective of declining home values. Still, there are others who have made money during this tough economic season as they have had exceptional certified financial counselor advice and been in the right market at the right time.
Ultimately, each investor has to make the determination of whether they are in sound financial health.
Annual Portfolio Exam
Just as you visit a doctor each year for a medical check up, you should also visit a certified financial planner (CFP) each year to have your portfolio examined to see if it is in good health. Now, you may be an expert in investing and not need a CFP, but even a smart lawyer hires another when in need.
A CFP earns their distinction as experts on financial investing not because they have more time to pour over market and geo-political information than a regular guy, but have to undergo rigorous education to pass equally difficult examinations, must have experience as a financial advisor, and meet certain ethical requirements.
Just as you would expect your family doctor to be able to diagnose and treat a wide range of maladies and physical ailments, so you can expect your CFP to be an expert on a host of financial products and markets to be able to rightly help you determine which areas your money should be invested in. They may include asset protection planning, estate planning, insurance planning, investment and securities planning, retirement planning, tax planning, and more. They are trained to look at their clients finances and goals and help create a pathway that will help them achieve these financial goals and keep their portfolio healthy.
It is essential for you to have your portfolio examined yearly. The beginning of the year, at least within the first 3 months, is typical for many investors as they prepare for tax season. But, do it when you are able; just be consistent about it. Your life changes and with it your goals may also change. This means your portfolio may need some adjusting. Unexpected matters arise that may also cause you to reform your portfolio. No matter, an annual check up will help you keep your money working best for you.
Five Ways to Improve Your Financial Health
Even if you don’t have a certified financial planner you can still do the following to improve your financial health.
1) Emergency Fund: In these uncertain economic times it is wise to have a growing emergency fund readily available for your use. Sock a few dollars away in it each month and try and get it to the point where 6ou can live off of it comfortably for 6 months if you had to. These dollars can go towards car repairs, emergency medical expenses, funerals and other means that may not typically be a part of common every day needs.
2) Debt-free: Most people in debt are making others wealthy and not themselves. It iis funny to see someone invest in credit card companies while carrying thousands and thousands of dollars in credit card debt! Also, get rid of those expensive school loans. Every dollar you save from not paying interest rates will exponentially grow your wealth that much faster. Imagine taking that dollar and instead of paying only interest it is invested at a meager 5% – it is growing and doubling within no time. A penny saved, as Ben Franklin would say.
3) Retirement: After taxes and tithes, put 10% of your salary aside for retirement. If you average making $50,000 that would be $5,000 per year. Over 35 years that would amount to just under $1,000,000 at 5% interest, but does not include social security or the value of your home. $35,000 per annum adjusted to inflation in 35 years will be around $90,000 dollars that you will need a year. If you plan on living modestly for at east 20 years then you will need at least this much saved to be able to do so.
4) Live Below Your Means: It is not unusual for people who get raises to spend up to that raise and not maintain their lifestyle as before and save the newfound wealth. This is a cultural mindset that needs to be changed, and, if done, will help you realize your financial goals much more quickly and help you maintain your financial health when downturns in the economy occur, loss of job happens, new additions to the family are made, or sudden monetary need arise.
5) Financial Review: Chip Hutchison of the Hutchison Group says that it is unwise “to be as one who sees a little loss occurring and then suddenly wants to turn over all the money into something that is working. Avoid frantic investing, once in a lifetime opportunities that mask greed and are usually unstable,” but do take a serious look at your portfolio with a CFP to see if your money needs to be moved around. Be wise and know what is going on with your investments.
From the writers at RevenFlo