Take These 8 Key Steps to Financial Success

For some, planning ahead for the future may seem daunting, exhausting or even boring. For others already in or nearing retirement, working with limited options or time can be frustrating. Here are eight key actions you can take or start planning for today to support your financial success.

Actions to Take to Support Your Financial Success

  1. Complete estate plan (will, power of attorney, trust): Identify who will own your assets and make decisions for you. The government will decide if you do not have proper documentation ahead of time.
  2. Acquire adequate insurance (health, life, specialty): Even one unexpected accident or health issue could dramatically hinder your finances. Plan for adequate coverage rather than the least expensive policy.
  3. Identify long-term care plan (insurance or family): Do you plan to take care of your parents or delegate care to someone else? The average cost for long-term care in Colorado is about $3,000 per month. (For related reading, see: Taking the Surprise out of Long-Term Care.)
  4. Support Medicare enrollment (fill gaps in coverage): Medicare alone does not cover some significant areas like exclusive assisted living. Medicaid qualification may force spending down many personal assets to as low as $2,000 with minimal income for personal spending.
  5. Complete financial plan (emergency fund, debt reduction): Analyze and monitor your monthly cash flow to balance expenses with income. High interest rates from debt will counteract or delay your investment returns. (For related reading, see: The 7 Key Areas of a Comprehensive Financial Plan.)
  6. Set up personal portfolio management (savings, Roth IRA): Establish auto-deposits into a balanced investment portfolio based on your time horizon (some brokerage platforms even offer accounts with no minimum). Keeping your savings in cash can actually lose value over time from inflation.
  7. Maximize employer retirement matching (401(k) 403(b)): Identify and contribute the maximum amount applicable to employer matching. Failing to maximize employer matching is essentially forfeiting free money.
  8. Increase income potential with education fund (529 Plan): Advanced degrees can significantly increase income and be funded with tax-advantaged finances rather than after-tax, out-of-pocket funds. Paying for education expenses with after-tax funds or high student loans can greatly impact personal retirement income.

The Power of Compound Interest and Diversification

Harness and protect your assets so you can invest in your legacy. As an example, with the power of compound interest and diversification, making the max contribution of $5,500 per year to a Roth IRA from age 23 to 67 can generate up to $1 million for retirement (6% return compounded annually, no inflation). Additional investments are required to live on more than $60,000 per year for 30 years. Delaying just two years before maxing out a Roth IRA contribution could cost over $130,000 by age 67.

In 2008-2009, the stock market dropped over 50% in just about five months. Investors who sold lost up to half of their investment. By 2013, the stock market fully recovered, and it doubled in 10 years. Investors who held or kept buying gained up to double their investment. You can reduce risk through a highly diversified investment portfolio with Exchange Traded Fund (ETF) allocations.

If you are younger, start investing now. If you are older, do the best with what you have and encourage your children or grandchildren to start young. While having a caring and competent financial advisor can make the difference in achieving your goals, you can start making a difference by deciding on some critical areas. Investing in your legacy includes growing and protecting your assets. Choose to start making a difference today!

(For related reading, see: Starting Early With Financial Planning.)