6/4/08

With the current downtrends in the economy, it is very difficult to find that place in your financial zen garden where solace reigns supreme. While there aren't many certainties in life, there are some things you can do to keep what you have as risk-free as possible and find some financial positions that provide the most reasonable amount of security attainable.

A Very Good Bet Is A Safety Net!

You never know when things will turn bad in life. If you are not socking away some money on a regular basis into a liquid, instantly-accessible account for an emergency fund, you should be. Personal finance oracle Suze Orman (not in love with her or all of her often over-simplistic advice, just using her as an example) recommends a safety net equal to 6 month’s living expenses. As a self-employed individual with no worker's comp or unemployment insurance to fall on, I personally feel more comfortable with one year’s living expenses which is what my wife and I have in an ING Orange Savings Account which is FDIC insured. The interest we earn on the money (currently around 3%) we use to pay down principal on our mortgage so there’s an added benefit there as well. Many financial experts swear by money market securities as a very safe and liquid investment option, but investment options always carry some degree of risk which is sort of counter to what we are trying to achieve here isn’t it?

Do Some Long-Term Investing - Think I'm Jesting!?

Hey! Didn’t I just write that investment options weren’t the greatest of ideas!? Yes and no. I wrote that putting your EMERGENCY FUND into investment options that were not federally insured and did not give a GUARANTEED RATE OF RETURN was a bad idea. Once you have that established and your emergency fund in place, you should start seeking some investments for the longer term in places that despite some short-term ebbs and flows, have historically performed well over decades. If you look at the stock market over the past 70 years, it has done nothing but go up at a steady rate. This is where you should consult a professional financial adviser. Typically it is assumed that the long term rate of return for stocks is about 12%, bonds 8% and cash comes in around 4%. Many employ a strategy of putting their money into more volatile positions such as stocks for the longer term and then towards the peak of an uptrend as their need for the money gets closer (within 10 years of retirement often), they will move into less risky, albeit lower-returning bond and cash positions. Diversification is key to limiting exposure. Be diligent about researching the areas in which you plan to invest and research and step carefully!

Assurance in Insurance!

Insurance is complicated and difficult to understand, and the type of insurance that is right for one person isn’t always right for another. There are five basic types of insurance which most people should have (in no particular order):

* Homeowner
* Health
* Disability
* Life
* Auto

How much insurance you should have in any of these areas really depends on your own individual situation, what you have to lose and how the loss would affect you and others. As with all things of importance, do your research and don’t over-insure just because some pushy agent sees you as a walking bag of money. Consult with different experts and utilize the internet for advice from independent sources and punch your numbers into some of those handy online insurance calculators. Knowledge is power!

Security Is Estate of Mind For Those You Leave Behind -

Ensure that what you leave behind goes where you intend with an Estate Plan. It’s never too early to get started preparing strategies to gift your assets to your intended recipients, documenting your wishes into a will, establish trusts and and a trustee to manage them, appoint an estate executor and child guardian and protect your holdings from those nasty creditors. Having your affairs in order is a great feeling of security and you will be glad you did so!

Don’t Do Debt!

Remember those ads in the 80’s stating DON’T DO DRUGS!? Well, debt is a drug in this day and age and I watch it ravage more unsuspecting lives every day for no good reason at all! Lenders intentionally mislead borrowers who don’t read all the fine print and chart themselves into waters of financial peril! It is very simple - If you don’t have debt, you are not beholden to anyone! Nobody can take you to court to pay them. Nobody can foreclose on your home (unless you don’t pay your property taxes). Nobody can take your car and nobody can ruin your credit rating which you actually don’t have any use for IF YOU DON’T BORROW MONEY FROM ANYONE! Got it!? Good!

Please visit my website at http://www.letsgetahead.com for more great articles like this one!