PERSONAL CFO SERVICES with NO Conflicts of Interests. the way planning should be donE
Budgeting & PLanning Philosophy...
“The future depends on what you do today… Without action, you aren’t going anywhere.” Mahatma Gandhi
The principles below are the same that I have applied to my own financial planning and are the same principles and philosophies I align with when working with my clientele.
-Vinee
Know your numbers…Know your situation
- The first task I recommend for anyone who wants to improve their financial picture is to get a keen understanding of where you currently stand. What does that mean? Let's dive into this a bit deeper…
- The first step in understanding your financial picture is to understand your net worth. Your net worth is simply your assets minus your liabilities or to put it another way, what you own versus what you owe. We cannot do anything constructive until we understand where you are at and with any journey, we need to understand where we are starting from.
- The next step in understanding your financial picture is to have an understanding of your budget and cash flow and be able to account for every dollar of your take home pay. Every dollar! We cannot figure out what we want to do next as far as our goals without understanding what resources we have to get there.
- Whether you make 50k a year or 500k a year, I cannot stress the importance of understanding and accounting for each after tax dollar you have. Numbers do not lie and it is critical to understand your current situation in order to be able to discuss future goals and tradeoffs.
- Part of this process is starting to understand that each of us, whether it be as individuals, partners or married couples need to budget yourself and track finances just like a business would. Everyone has a second job and that is to manage their finances….just like Apple, just like Google, just like every other successful business out there.
- The last part of initially understanding your financial picture is to establish your goals..short, mid and long term.
- We want to know what it is we are working for and in turn, the most efficient and effective ways to reach said goals.
- Net Worth=where you are at, Goals=where you are going, Budget=what resources you have to get there and the plan is how you are going to get to where you want to go using what you have as your current starting point.
Cash Is Indeed King-that is, knowing when you need cash
- Once you have figured out what your financial goals are, the one thing we know is that all financial goals require cash in order to achieve them.
- It is critically important and in some ways, the most important item is to have a keen understanding of when you will need cash and how much cash you will need.
- Knowing when you will need cash and having that cash available to you when you need it allows the rest of your investments to grow and not have to worry about the ups and downs of the market and most importantly, not having to sell when the market is down. This is called setting yourself up for success. The market has an upward trend over the long term so if know your cash needs and can fund them without having to sell, you are setting yourself up for success.
Let the indexing begin!....See the Investment tab for more
- Once you understand how much cash you need and when, the rest should be in passive low expense index funds and if you are looking to build a passive income stream, a focus on dividend growth stocks is imperative.
- Indexing allows you to capture market returns which most investors along with professional money managers are not able to achieve (See the Investment tab for more on this.) Because a majority of investors do not achieve market returns, they feel like they have to take additional risk by investing more in speculative stocks or having a higher allocation to stocks than they should. For a majority of investors, If you just capture the market returns, you don't have to take unnecessary risk to beat the market to achieve your financial goals. The savings from not paying an annual professional management fee over the long term can compound into quite large amounts over time.
- If you can meet your investment and financial goals with a low cost index fund, why would you look for something with higher risk, higher expense and a higher probability of not reaching your goals?
- Eighty-four percent of active managers underperform benchmarks after five years. That jumps to 90% after 10 years, and 95% after 20 years. CNBC
Speaking of that cash you have set aside for those goals….
- This money can and should be working for you as well.
- Your cash should be invested in very low risk vehicles such as FDIC insured CD’s, treasury bonds and/or treasury bills that match the time frame of when you need to use those funds.
- One benefit of this recent bout of inflation that we have is that interest rates have gone up and if you have not looked at what short term CD’s and treasuries are paying, you may be surprised.
- The theme is that we need to make sure every dollar you have is working for you at all times!
“Always begin with the end in mind”
- As difficult as it may be to look into the future and figure out what you are looking to accomplish, it is key to try to align your current activities with your long term goals.
- Take a blank piece of paper and draw a line with the top of the page being today and the bottom of the page being 25 years from now…let's make sure what we do in between those points allows you to reach your goals.
- And remember....Most people dont plan to fail, they fail to plan…