Financial Column 11/25/2010

Little ways you might improve your financial life

Some things to think about this year… and every year.

By: Steve Zimmerman

Financial Advisor

This is the year! Yes, you can make 2011 the year you alter financial life for a better financial future. Let’s look at some steps you might think of taking with the goal of financial freedom in mind.

No, we’re not talking about those ridiculously obvious steps the usual articles recommend, like “write your goals down” and “set a budget”. Let’s go past the cliches and get into the real issues.

Look at the income source, your expenses and your debt. How do you earn income? If you earn it from one source, is there effectively a ceiling on it, or is there real potential for your income to risk in the next few years?  Now look at your core living expenses, the ones you can’t avoid, ( such as a mortgage payment, car payment, etc.) Can any core expenses be reduced? Investing aside, you position yourself to gain ground financially to build wealth- you can plan to build wealth and minimize debt at the same time.

Maybe you should pay your debt first, maybe not. If you are a business owner or a professional, for example, you’ll likely always have some debt. Your ultimate goal should be to build wealth- and you can plan to build wealth and minimize debt at the same time.

Some debt is good debt. A good debt if it brings you income. If you buy a rental property, you’re paying a mortgage, but that’s considered a good debt because you’re getting passive income from the rent payment. Credit cards are bad debt.

If you are carrying a debt for awhile, put it to the test. Weight the interest rate on that specific debt against your potential income growth rate and your potential investment returns over the term of the debt. If the interest rate on the debt looks like it will outpace your income growth and investment returns, then you should really think about paying that debt down fat, because you can’t afford that interest rate.

Of course paying off your debts, paying down the balances and restricting new debts all works toward improving your FICO score, another tool you can use in pursuit of financial freedom. We’re talking good debt.

Implement or refine an investment strategy. You can’t refrain from investing,even when the bear are out. You’re not going to retire on the relatively small elective deferrals from your paycheck, you’re going to retire on the interest that those accumulated assets earn over time, plus the power of compounding. Investing can also potentially bring you passive income. Consistent investing, this year and in years to come, has the potential to help you improve your financial life. Manage the money yo make on your way to financial freedom. It’s amusing, all these internet gurus tell you how they have a method to make you financially free, or debt free., but few tell you how to mange the money you make. Their- not-so subtle message seems to be “succeed and live lavishly” – if you make it financially, you’ve earned the freedom to blow it all on cars, boats and luxuries.

This classic nouveau riche mistake. If you simply accumulate assets, you have the money just sitting there open to risk-inflation risk, market risk, even legal risks.  Don’t forget taxes- while technically a “risk” they are a threat to your money. The greater your wealth, the more long-rage potential you have to accomplish some profound things- provided your wealth is directed.

If you want to build more wealth this year or in the near future, don’t neglect the risk management strategy that could be instrumental in helping you retain it. Your after tax return matters even more that your investment return, so risk management should be a part of your overall financial picture.

Request professional guidance  for the  wealth you are growing. A good financial advisor will really help to educator you about the principle of wealth building. You can draw on that professional knowledge and guidance this year- and for years to come.

Steve Zimmerman is a Financial Advisor with Capital Investment Company and may be reached at szimmerman@capital-invest.com or 828-389-9898.

This material was prepared by Peter Montoya Inc. and does not necessarily represent the views of the presenting Representative or the Representative’s Broke/ Dealer. This information should not be construed as investment advice. Neither the named Representatives / Broker/ Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal,accounting or other professional. Please consult your Financial Advisor for further information.