The Five Fundamentals of Financial Success!

The Five Fundamentals of Financial Success is always a great starting point when it comes to financial planning. Matter of fact, every new client I meet with, wealthy or not, gets to hear my commentary on these five gems. Even though these financial nuggets seem simple, the effectiveness is real.

1. Save at least 10% of your income

Saving 10% of your total income is paramount to your financial health. By saving at least 10% of your income, you are effectively living within your means.  Many of the financial struggles that individuals and families face can be attributed to living beyond their means (spending more than they earn).

This is one of the most important aspects of a successful financial life.  Saving 10% of your total income is a great method to take you to the next stage in your financial lifecycle.

2. Have sufficient liquidity

Just as a building set upon a weak foundation will collapse under stress, a financial plan without sufficient liquidity is vulnerable to failure under economic hardship.  We all face difficult financial times in our lives, and proper liquidity will help us weather a financial storm without irreparable damage.  Having the right amount of emergency funds is the keystone of your financial foundation!

Once the proper amount of liquidity is determined, the money should be held in the most tax efficient manner possible.  These emergency funds will strengthen your financial foundation and serve as a defense against a true emergency.  We define an emergency as a situation that would result in a drop of your tax bracket.

3. Fully Fund Retirement Plans (can be applied to 10% savings goal)

This fundamental of financial success will serve two purposes. First, by contributing and funding a retirement plan, you will be saving towards or above your 10% goal. Second, money applied towards a defined contribution plan is not currently taxed.  This tax–deferred money whittles away at the largest expense for Middle Americans: taxes.  The government actually will subsidize your retirement by allowing favorable tax treatment of employee contributions into the plan.  Another benefit to defined contribution plans (401K and 403b type plans) is the matching available from the employer.  This allows an employer to match up to a percentage of the employee contributions.  By not contributing at least up to the match, employees are leaving free money on the table.

4. Have the right house and mortgage

Buying the right size house and having the right size mortgage on that house is a key factor in your financial stability. A mortgage (long term fixed) leverages money by the tax savings generated by our current tax system and makes use of the fact that mortgage payments in the future will cost less due to inflation. A home valued at two to three times
your income with a mortgage of 50% to 80% is usually recommended.

5. Pay off credit cards/ consumer debt

Credit card and consumer debt can be one the biggest struggles people face on the road to financial freedom.  It not only imposes a real monetary cost (interest), but it also can create an unhealthy attitude towards money and spending.  Credit card and consumer debt can lead to overspending and living beyond your means.  Credit card and consumer debt interest payments are not tax deductible like mortgage interest. Therefore, credit card and consumer debt should be eliminated.

These Five Fundamentals of Financial Success are not meant to be all encompassing,
but these fundamentals are generalizations that are meant to improve financial


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