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10 STEPS TO FINANCIAL SUCCESS

Financial success means being in control of your for them each month or pay period. It is important to
money. Your income doesn’t determine how financially remember that the goals must be within reason in order
successful you are, your choices and priorities do. By to achieve them. For example, setting a goal to retire at
understanding what you want to achieve financially, age 35 when you are 33 and have yet to save anything
establishing a realistic spending and savings plan, and is likely not as achievable as setting that retirement
preparing for your future, you can establish personal goal further down the road.
financial control. These ten steps will help you make
educated choices based on clear priorities. Changing
life-long financial habits may take some work, but by The Financial Goals Worksheet will help you determine
following these steps, you can make the adjustments the timeline for your goals and the amount of money
you need to make your money work for you. you’ll need to regularly set aside in order to reach
them. You may find the numbers daunting or even not
realistic based on your current financial situation. To
Step 1: Establish Goals resolve this, consider ways to increase your income
or decrease your expenses. You may even consider
Most of us have goals and dreams that we’d like to adjusting your goals. Determining your priorities at
achieve. A very important first step in reaching them is this point is essential. If you share your finances with
to know exactly what they are – and to understand the someone else, discuss and set priorities together. It is
steps you need to take to achieve them. All financial not uncommon for couples to work at cross-purposes
goals should be specific, measurable, and realistic. financially without even knowing it. By communicating
with each other and determining what’s most
important, it will be much easier to reach your goals.
Determine the amount of money you need and the
timeline for saving the money. There are three types of Financial Goals. Your financial goals are specific things you
goals: short-range, mid-range, and long-range. Short- want to do with your money within a certain time period.
range goals are to be met in one year or less, mid-range Short-range goals are accomplished within one year, mid-
in two to five years, and long-range in five years or range goals are accomplished within two to five years, and
more. Make your progress toward your goals trackable long-range goals generally take more than five years to
by setting aside a predetermined amount of money achieve.

Additional Savings Savings

Pay Periods
Target Total Current Savings Needed Needed
Until Target
Date Needed Savings Needed Per Pay Per
Date
Period Month
36
Ex: Down payment for a house $5,000 $15,000 72 $208.50 $417.00
months $20,000

Short Range Goals

Mid Range Goals

Long Range Goals

Total

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Step 2: Take Stock

In order to evaluate your progress as you work toward your goals, you must determine what your overall financial
picture looks like today. Your net worth is simply the difference between what you own and what you owe. To
make sure you are staying on track, calculate your assets and liabilities at least annually. If you conscientiously
follow your plan, you should see a gradual, steady increase in your net worth. Complete the Net Worth Worksheet
to see where you currently stand.

What You Own What You Owe

Checking/saving
Mortgage
accounts
Investment
Credit cards
accounts

Stocks & Bonds Credit cards

IRAs/Employer-
Auto loan(s)
sponsored retire-
ment plans
Other loan(s)
Home/real estate­
Other loan(s)
Automobile(s)
Other debt(s)
Other assets
TOTAL OWED (B)
TOTAL OWNED
(A)

To figure your net worth, subtract the total owed from the total owned.

Total owned (A)___________ – Total owed (B)___________ = ____________ (Net worth)

Step 3: Create a Spending and Savings Plan

Now that you know what you want to achieve financially and what your net worth is, it’s time to take a close look
at the reality of your day-to-day financial situation. You know where you want your money to take you, but it’s
also important to know where you are right now.

Income
The first step in examining your spending plan is to look at your income. How do your gross and net income
compare? Are your tax withholdings appropriate for you? If you get a large tax refund or owe taxes each year, you
may want to make some withholding adjustments. Use the Income Worksheet to write down how much you make.
Be realistic when it comes to any non-guaranteed income such as overtime and bonuses. Also, if your income
fluctuates, use a conservative figure to make sure you don’t overestimate.

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Monthly Income. Enter your gross (pre-tax) and net (post-tax) income from all sources. For income that you
receive infrequently (such as bonuses or tax returns) calculate the annual income, then divide by twelve to find
the monthly amount.

Source Gross Net

Job
Spouse’s job
Part-time job
Rental/room & board received
Commissions/bonuses
Tax refunds
Investment income
Government benefits
Unemployment insurance
Child support/alimony
Support from family/friends
Other
Total

Expenses
Analyzing expenses by developing a detailed budget can be a challenge, especially if you have never done it
before. However, if you think of it as establishing a plan for spending and a tool for reaching your financial goals,
it becomes a much more pleasant concept.

Use the Weekly Expense Worksheet and Monthly Expense Worksheet to list your expenses. You may need to
track your daily spending for several weeks or months to get a realistic cash flow picture. Consider listing every
item you buy in notebook, or save receipts and tally them up at the end of the day. Another option is to use your
debit card for all or most of your purchases and refer to the statement that your financial institution provides for
spending information. After you have accurate figures, plug the numbers into the worksheets. If more money is
going out than coming in, consider all reasonable options to at least come out even. Perhaps you can increase
your income with a part-time job, car pool to save on gas, or bring your own lunch to work.

Be aware of “budget busters.” These vary from person to person, but often include impulse purchases, splurging
on gifts or vacations, and the mysterious way the $40 you took out of the ATM is suddenly gone.

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WEEKLY EXPENSE WORKSHEET

Total
Weekly Over /
Item Mon Tue Wed Thu Fri Sat Sun Weekly
Budget Under
Expenses

Groceries

Restaurants/
take-out
Laundry/dry
cleaning

Medical/dental

Auto/gas/
parking
Other
Transportation

Babysitting

Personal care

Clothing

Bank fees/
postage

Entertainment

Books/music/
video
Cigarettes/
alcohol

Gifts/cards

Home/garden

Contributions

Other

Other

Other

Other
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Weekly Totals

Budget Overview:

Income Expenses Balance (+/-)

4
MONTHLY EXPENSE WORKSHEET

Total
Monthly Over /
Item Week 1 Week 2 Week 3 Week 4 Week 5 Monthly
Budget Under
Expenses

Savings

Groceries

Restaurants/
take-out
Laundry/dry
cleaning

Medical/dental

Auto/gas/
parking

Other
transportation

Babysitting

Personal care

Clothing

Bank fees/
postage

Entertainment

Books/music/
video
Cigarettes/
alcohol

Gifts/cards

Home/garden

Contributions

Other

Other

Other
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Monthly Totals

Budget Overview:

Income Expenses Balance (+/-)

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Savings
Saving money is an important, but often neglected, part of every financial plan. Even with the best intentions,
there always seems to be a reason to put off getting started until next month. The only way to reach your financial
goals, however, is to start setting aside the money now. Before allocating cash for your goals, make sure you set
up an emergency savings account. Financial emergencies are a fact of life and can drain your dream fund if you’re
not prepared. Having three to six months’ worth of basic living expenses set aside in a liquid account can protect
you if the unexpected happens. In tougher economic times, you may want to save six to nine months worth of
expenses to be safe. Set a target date for having this safety net in place, and include the monthly amount needed
to get there into your spending plan.

Once you have the emergency savings in place, you can factor in the amount you want to save toward the goals
you determined in Step One.

Debt
If you are holding on to unsecured debt, make repayment a priority. It makes sense to rapidly eliminate high
interest balances before you save for a luxury vacation or dream home. Use the Unsecured Debt Worksheet to list
your creditors and add your balances. By knowing what you owe, you’ll be better prepared to commit the funds
necessary to tackle that obstacle.

Unsecured Debt. List all debts (except auto loans and mortgages) along with the name of the creditor, interest rate, total
balance owing, and the required minimum payment. This includes credit and charge cards, installment loans, personal loans,
and outstanding medical bills.

Unsecured Debt Worksheet

Creditor Name Interest Rate Monthly Payment Balance
1
2
3
4
5
6
7
8
9
10

Add your expenses, the amount you need to save to reach your goals, and the payments to your creditors.
Subtract the total from your income. If the numbers balance, congratulations – you’re on the right track. If not,
you will need to take action, which could mean increasing income, decreasing expenses, adjusting your goals, or a
combination of these activities.

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Bottom Line. Once you have determined the total of your take-home pay and expenses, you are ready to figure out your bottom
line. Using the Bottom Line Worksheet, subtract the total of all expenses including debt payments from your net income. If the
result is a positive number, you can add the extra money to your savings to reach your goals sooner. If your expenses exceed
your income, you’ll need to make some adjustments to bring your finances back into balance.

Bottom Line Worksheet

Total
Monthly Net Total Essential Total Debt
Discretionary Balance
Income Expenses Payment
Expenses
– – – =

Step 4: Live Within Your Means

Living within your means may seem like simple common sense. All you need to do is spend less than you make,
right? For many of us, though, the reality is much more challenging than this basic concept. If your expenses
exceed your income, you charge more each month than you pay off, or you’re not saving toward your goals, you
are, in fact, living beyond your means – and cheating yourself out of making the most of your money. Don’t get
discouraged, though. There are ways to gain control of your finances.

You may have a few options for increasing your income. Working overtime, getting a part-time job, a better
paying job, or applying for a promotion are a few possible ways to bring in more money. Selling assets can bring
in lump sums that can be used for eliminating debt or applying to savings plans for future goals. If you decide to
liquidate assets, though, be sure to find out if you will have any tax consequences or penalties for doing so.

Most of us have some expenses we can reduce or eliminate. While fixed living expenses are generally more
difficult to adjust than discretionary expenses, if you are truly committed to your goals, a little creativity can go a
long way. Consider each expense carefully. Is there anything you currently spend money on that you can reduce,
substitute, postpone, or forego?

Budget Guidelines
Housing
Spend no more than 35% of net income on housing. Depending on whether you rent or
own, that can include mortgage/rent, utilities, insurance, taxes, and home maintenance.

Savings
Save at least 10% of income throughout your working life. Make sure you have 3–6
months income in an emergency fund before you start saving for other goals.

Transportation
Spend no more than 15% of net income on transportation. That includes a car payment,
auto insurance, tag or license, maintenance, gasoline, and parking.

Debt
Spend no more than 15% of net income on such consumer debt as student loans, retail
installment contracts, credit cards, personal loans, tax debts, and medical debts.

Other
Spend no more than 25% of net income on all other expenses. This includes food, clothing, entertainment, childcare, medical
expenses, tithing/charity, and vacations.

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Step 5: Pay Yourself First

Long-term savings plans are the third tier. For most
There never seems to be a convenient time to start people, long-term savings are for retirement or a child’s
saving – the car breaks down, you have to buy holiday college education. Because you have many years to
gifts, a larger than expected utility bill comes in…. save, investment earnings can make your money work
However, because of the power of compound interest, for you. There are several savings plans available for
continuingly making even small investments in your these goals with favorable tax advantages.
future can result in saving a small fortune over time.
That’s why the most frequently given advice by The chart shows the difference between a $250 a
financial planners is to pay yourself first. In other words, month contribution to a tax-deferred account and a
make savings your top priority. taxable account, assuming a 6% annual return and state
and federal marginal tax rate of 30%.
The easiest, most painless way to save money is
through an automatic savings plan. Talk to your
employer about having a set amount deducted from Tax Deferred vs. Taxed Investments Taxed
Tax Deferred
your paycheck and deposited into a savings account
$300,000
before you even see it. Another option is to have your
financial institution move a set sum from your checking $250,000
account to a savings account on a designated day each
month. $200,000

An excellent goal to shoot for is to save ten percent $150,000

of your net income. This can seem like an intimidating
figure, but if you prioritize your spending, you may $100,000
very well be able to meet it. By weighing the instant
$50,000
gratification you feel by making some of your current
financial choices against the ultimate reward of
0
reaching your goals, you may find that you are able 15 years 20 years 25 years 30 years
to save much more than you ever thought you could.
Establishing a three-tiered savings plan allows you Employer-sponsored Retirement Plans
to protect yourself against the inevitable financial If you work for a for-profit company you may have a
surprises that come your way while working toward 401(k) plan available to you, and if you work for a non-
your future financial dreams. profit organization, a charity, or a school you may have
a 403(b) plan available to you. Both plans allow you to
The first tier is an emergency savings that should equal save for your retirement using tax-deferred funds. You
two to six months of your essential expenses. This don’t pay taxes on the amount you contribute or on
will provide you a safety cushion should you become the investment earnings in your plan account until you
unemployed or suffer some other financial setback. withdraw funds, usually when you retire. As an added
Keep these funds in an account where there are no incentive to save, your employer may even match a
penalties for early withdrawal. So you aren’t tempted portion of your contributions – which is essentially free
to dip into it for something other than emergencies, money for you.
don’t save the money in a checking account, but use a
separate savings account instead. If you have any other Individual Retirement Accounts
important goals that you want to save for in twelve IRAs are personal accounts set up for retirement
months or fewer, include them in this first tier as well. planning. For traditional IRAs, contributions are limited
to a specific dollar amount, and are completely tax
The next tier of savings is for your medium term deductible as long as you don’t participate in an
goals- the ones you want to reach in two to five years. employer-sponsored retirement plan. If either you or
It is a good idea to keep these funds in a semi-liquid your spouse participate in an employer-sponsored plan,
investment account – one where the interest you earn your IRA deduction may be limited or eliminated based
outpaces inflation. Avoid investing the money in an on your income.
account that puts your savings at great risk. If the
market is down when you are ready to take the funds
out, you won’t have enough for your goals.

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Roth IRA soon as you do, your deposits will reap the benefit of
Like a traditional IRA, the Roth IRA is set up for compound interest. In order to save money, you may
personal retirement planning. While Roth IRA have to spend a little less today, but your future, and
contributions are non-deductible, the earnings that of your family, is probably worth the sacrifice.
accumulate tax-deferred and may be withdrawn tax-
free if you’ve had the Roth IRA for more than five This chart reflects a savings plan of $150
years and you are at least 59.5 years old. There is a ten a month with a 6% annual return.
percent penalty for withdrawals made before you are
59.5, however, this penalty may be waived for qualified
higher education expenses, first-time home purchases, Harness the Power of Time Start Now
Wait 10 Years
disability, death, and certain medical expenses.
$200,000

Coverdell Education Savings Accounts $150,000

Previously called Educational IRAs, Coverdell Education
Savings Accounts are tax-deferred accounts. The $100,000
contributions are not tax deductible, but they do
$ 50,000
grow tax-free, and the funds can be withdrawn tax-
free as long as they are used to pay eligible schooling
0
costs. Most people can use the Coverdell, though 15 years 20 years 25 years 30 years
if your adjusted gross income is high, the amount
you can contribute is limited or phased out entirely.
You can open a Coverdell at any financial institution Step 6: Delete Your Debt
that handles traditional IRAs, and you may use just
about any investment option to build your savings, If consumer debt is throwing your budget out of whack,
including stocks, bonds, mutual funds, and certificates discipline and commitment are the keys to get it back
of deposits. The money in the account must be used on track. First, make a pact with yourself to live a cash-
before the child reaches 30. If your child decides not only lifestyle. Before you can reduce your balances, you
to attend college or there is an unused portion left need to stop increasing them. Close the accounts if you
over, there will be a tax consequence and ten percent don’t feel you can control your spending. If you keep an
penalty. To avoid this, you can roll over the balance to emergency credit card, don’t carry it with you. Keep it
another Coverdell plan for a different family member. in a secure place in your home.

529 Plans There are two basic methods of efficiently repaying

529 plans allow you to save for your child’s higher your debt. Increasing your payments will dramatically
education expenses while greatly reducing your tax reduce the length of time, and thus the cost, of paying
liability. As long as the investment is used for qualified your creditors. Reducing interest rates will also save
education expenses, you won’t have to pay income tax you repayment time and money. If your credit rating is
on the earnings, and if you use your own state’s plan good, requesting better rates from your lenders may
you may also qualify for a state tax deduction. There work.
are two varieties of 529 plans: the college savings
plan and the prepaid tuition program. With a college Transferring balances to lower rate accounts is also
savings plan, the plan manager provides a selection of effective. If you have equity in your home, converting
investments from which you are able to choose. Prepaid high-interest credit card debt to low-interest secured
tuition programs are really a way to lock in tomorrow’s debt is a tool to consider- and the interest may be
tuition costs at today’s prices. Contributions are limited tax deductible. Be sure you can handle the payments
to amounts necessary to pay your child’s education involved in this option, as defaulting on a loan secured
expenses at a specific institution. The program manager by your home can have dire consequences. If you do
makes the investment decisions for you, ensuring there transfer balances to lower rate cards or secured debt,
is enough accumulated for the tuition. make sure you close the old accounts to keep from
using them again.
It can feel overwhelming to embark on these savings
plans, and as noted earlier, there always seem to be By paying attention to your balances, interest rates,
reasons to put it off. However, the benefits of starting and finance charges, you can make educated decisions
now, as illustrated in the Harness the Power of Time about how to most sensibly repay your debt. Some
chart, may be just the inspiration you need to begin. As people like to increase their payments to their lowest

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balance cards and make just the minimum payments on their larger-balance accounts. This system does provide
quick gratification as the number of accounts with outstanding balances reduces quickly, but may not make the
most sense financially. To repay debt most efficiently, commit the bulk of your available debt repayment funds to
the account that is most expensive and pay the minimum payments on other accounts. As the more expensive
accounts pay off, commit the funds to the next most expensive account.

The Cost of Credit chart shows how much a $5,000 debt can cost with different interest rates and payments.
By increasing the payment amounts, decreasing the interest rates, or a combination of the two, it is possible to
reduce the time it takes to repay the debt by more than half, saving thousands of dollars in the process.

The Cost of Credit

Balance Interest Rate Monthly Payment Repayment Time Total Cost
$5000 18% $ 100 7 years 10 months $ 9311
$5000 18% $ 150 3 years 10 months $ 6984
$5000 15% $ 100 6 years 8 months $ 7896
$5000 15% $ 150 3 years 8 months $ 6509

It is very important to recognize that credit is not a bad thing – it is a tool, and when used well, can be beneficial.
In many ways credit can help us achieve our goals. A mortgage loan used to buy a home or a student loan used to
get an education can be debt that works in your favor in the long run – it’s an investment and in many cases, the
interest can be tax-deductible.

Step 7: Buy a Home require a FICO score of at least 620 for approval and
mid-700s for the best interest rate. The lower your level
Purchasing a home can be a wise investment. While of debt, the higher the loan amount you can qualify for.
the real estate market fluctuates, most houses gain Many lenders require that your existing debt payments
value over time. Additionally, Uncle Sam subsidizes plus your mortgage payment not exceed 36-38% of
your property investment with tax breaks. If you itemize your gross income.
your deductions, you can deduct the amount paid on
mortgage interest and property taxes on your income Homeownership isn’t right for everyone. If you move
tax return, and when you sell the house, you are exempt around often or are struggling to meet your current
from paying taxes on up to $250,000 ($500,000 for financial obligations, having a mortgage may only be a
married couples filing jointly) of the profits from the burden. It is important to honestly assess your financial
sale if the home had been your primary residence for at situation and determine if you can carry a mortgage
least two of the last five years. and how much can you afford to pay. Don’t just rely
on the lender’s approval amount to tell you what you
If you dream of owning your own home someday, can afford – take a close look at your budget. If you
it’s never too early to start planning. It is typically get a mortgage you can’t keep up with and lose your
easier to get approved for a mortgage if you have a home, you are not accumulating any wealth – only
down payment – in fact, you may not be able to get damaging your credit report. You can always reconsider
a mortgage if you don’t have one. While 20% of the purchasing a home in the future if you decide it is not a
purchase price used to be the standard down payment good option now.
amount, today, many lenders will accept less. However,
you may have to purchase private mortgage insurance Step 8: Diversify
or get a second mortgage at a higher interest rate. In
addition to the down payment, it is a good idea to save All investments involve some trade-off between risk
for closing costs (the costs required to execute the and return. Diversification reduces unnecessary risk by
sales transaction) and post-purchase reserve funds. spreading your money among a variety of investments.
Simply put, avoid putting all your eggs in one basket.
Having a good credit score and low debt load also help
when applying for a mortgage. Many mortgage lenders First diversify among the three major asset classes:

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cash, stocks, and bonds. Once you have decided on the potential to wipe out the benefits of your bond
an allocation strategy among these three investment investment if its rate is less than the rate of inflation.
classes, then diversify within each type of asset. This
means buying multiple stocks within a variety of Cash Equivalent Securities
industries and holding bonds of varying maturities. Also known as money market investments, these
Also, don’t make the mistake of putting most or all of include CDs and U.S. Treasury bills. There is very low
your money in “safe” investments like savings accounts, risk of losing principal when investing in high-quality
CDs, and money market funds. Over the long haul, money market securities. Along with this low risk,
inflation and taxes will devour the purchasing power of however, comes comparatively low return potential.
your money in these “safe havens.”

Aside from diversification, the single most effective Mutual Funds

strategy is to invest continually, and with a long-term A mutual fund is an investment company that
perspective. As illustrated in the chart to the right, over purchases bonds, stocks, and other securities and
time different types of investments have had different sells shares to the public. They are popular because
rates of return. of the benefits they provide individual investors:
since fund shares represent investments in many
Market Performance different companies, shareholders are able to achieve
Average annual market return of stocks, bonds, and cash (1926 – 2014) diversification and therefore reduce their risk. Also,
mutual funds provide professional management. In
effect, you’re hiring a portfolio manager to use your
Stocks 10.12% money, and that of other shareholders, to buy a
portfolio of stocks, bonds or other investments. You
can invest in one mutual fund that holds the selection
Bonds 4.6%
of stocks, bonds, and cash equivalents you want, or
diversify even further by investing in various types of
Cash 2.3% funds. For example, you may want to invest in a mutual
fund that only holds foreign stock, government bonds,
or concentrates on the technology sector.
(Data is based on the S&P 500 index for stocks, aggregate
indexes for bonds, and 30-day U.S. Treasury bills for cash.)
Step 9: Plan Ahead

Stocks Insurance is an essential part of almost everyone’s

A share of common stock represents an ownership budget. Having the right coverage protects you and
interest in a company. It has intrinsic value based on your family against the financial problems associated
the net worth of the company. However, on the stock with auto accidents, medical emergencies, job loss,
market, the selling price of the stock is what buyers are natural disasters, or the death of you or a family
willing to pay. As an investment type, stocks are very member. The goal when buying insurance is to
volatile – their values can change wildly within short purchase the right amount of the correct type, without
periods. This volatility is what increases the risk, but becoming over-insured.
also provides the potential for greater gains than other
investment types. Health Insurance
Just about everybody needs health insurance. Even
Bonds routine medical procedures can cause serious financial
When you buy a bond, you are basically lending money difficulty if you have to pay for them all yourself.
to the issuer of the bond until the bond matures. The Many employers offer group health insurance to
issuer pays you continuing interest. Bonds are issued by their workers, and in many cases extend it to their
the federal government, state and local governments, employees’ dependants. Even if your employer requires
and corporations. The interest on some bonds, such as you to pay a portion of the insurance premium, in most
municipal bonds, may be exempt from federal income cases you’ll pay far less than you would if you had to
taxes. Bonds are typically less volatile than stocks, buy a policy on your own. A comprehensive health plan
and historically have had a lower return. Because covers doctors’ visits, surgery and other treatments and
bonds pay a fixed rate of interest, they are subject tests, hospitalization, and major (catastrophic) medical
to more inflation risk than stocks. Rising inflation has expenses from a prolonged illness.

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Disability Insurance a personal liability umbrella policy. Your umbrella policy

Statistics show that one in four workers will be out of kicks in when the damages you pay exceed the limits of
work for at least six months due to an injury or illness. your other policies.
If you don’t have disability insurance, such a prolonged
loss of income could result in serious financial trouble. Auto Insurance
State law requires that drivers have at least a minimum
Disability insurance usually replaces between 50 of auto insurance, and it is your responsibility to be
and 70 percent of your income. Benefits do not adequately covered. Without the proper insurance, an
begin immediately when you get sick or are injured; accident could put your physical and financial well-
there is a waiting period that varies from policy to being in jeopardy, as well as that of the passengers in
policy. The longer the waiting period before you start your car and any pedestrians or passengers in other
receiving checks, the lower the premium. An important cars involved. There are several components to auto
consideration when buying disability insurance is how insurance (bodily injury, medical payments, collision,
the policy defines “disability.” Some policies consider comprehensive, and uninsured motorist), which means
you disabled if you cannot perform your own job, you can customize your own policy to meet your needs.
while others consider you disabled only if you cannot
perform the duties of any job for which you are
reasonably suited, even if it pays substantially less than Renter’s Insurance
your current occupation. Make sure you understand It is surprising how few renters purchase insurance
what is offered through your employer. If you feel to cover their belongings in case of fire, theft, or
that the coverage is not sufficient, or if you are self- other loss. Renter’s insurance policies are relatively
employed, seriously consider purchasing an individual inexpensive – as low as a few hundred dollars a year
policy. – compared with what it would cost you to replace all
your clothing, furniture, electronics, and other property
if they were stolen or damaged. If you purchase
Life Insurance replacement cost coverage, which covers the actual
The purpose of life insurance is to provide protection cost to replace your property with a new comparable
for family members or others who depend on your item, you will pay a higher premium than you would for
income and would suffer financial hardship if you were basic coverage, which only reimburses you the actual
to die prematurely. The amount of coverage needed value of the property at the time of the loss.
varies widely from person to person. Whether you
have children, and their ages, are important factors to
consider when calculating your insurance needs, as are Homeowner’s Insurance
your age, your spouse’s employment status, and your If there is a mortgage on your property, your lender
housing situation. requires you to have homeowner’s insurance. Even if
you do not owe anything on your home, allowing the
When buying life insurance, you have a choice between insurance to lapse would be a grave mistake. If you
term insurance and the type of policy that has a savings are like most homeowners, your home is your greatest
component built in. Term life provides only death asset – without insurance coverage, a fire or other
protection over a specified period of time (usually five, disaster could lead to financial ruin. Homeowner’s
ten, or 20 years). Because term insurance is not an insurance generally provides coverage for fire damage,
investment, policies are, initially, less expensive than theft and liability (useful when your child hits a
whole, variable, or universal life. Cash-value life (whole, baseball through the neighbor’s window or a tree in
universal, and variable) is substantially more expensive your yard falls and takes down someone else’s fence).
in the early years than term because part of your Unfortunately, a basic homeowner’s policy does not
premium goes into a savings account. That cash value automatically cover losses resulting from certain natural
portion grows tax-deferred as you pay your premiums, disasters, such as earthquake and flood. For this type
usually at returns better than savings accounts or CDs, of coverage you need to purchase a special separate
but lower than traditional returns on other investments, policy along with your regular homeowner’s insurance.
such as stocks.
Wills and Trusts
Liability Insurance The simplest way to ensure that your funds, property,
Liability insurance protects you from financial loss and personal effects will be distributed according to
resulting from a lawsuit against you. Homeowner’s and your wishes after you die is to prepare a will. A will is a
auto policies generally include some liability coverage, legal document that ensures your assets will be given
though many consumers choose to supplement it with to family members or other beneficiaries you designate.

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 cunj.balancepro.org

Having a will is especially important if you have young after you are gone will relieve them the burden of
children because it gives you the opportunity to specify dealing with complex laws and tax issues at a time
a guardian for them in the event of your death. when they will likely not be prepared to handle them.
Speak with an estate planner if you have significant
Although wills are simple to create, about half of all assets and want to make sure your beneficiaries receive
Americans will die intestate, or without a will. With the most they possibly can.
no will to indicate your wishes, the court steps in and
distributes your property according to the laws of your Step 10: Get Help!
state. If you have no apparent heirs and die without
a will, it’s even possible that the state may claim your Financial matters, while very much a part of our lives,
estate. can be complicated. For many people, money is a
taboo subject. We learn very little about financial
To begin, take an inventory of your assets, outline your management in school and get most of our financial
objectives, and determine to which friends and family attitudes and knowledge from our parents, who may
members you wish to pass your belongings. Then, when or may not have been experts themselves. If you feel a
drafting a will, be sure to include the following: name a little lost in some areas of personal finance, call upon
guardian for your children, name an executor, specify an expert for help. There is no shame in not knowing
an alternate beneficiary, and use a residuary clause, everything. After all, if you’re sick, you go to a doctor;
which typically reads, “I give the remainder of my if your car breaks down, you take it to a mechanic.
estate to…” Once your will is drafted, you won’t have to Turning to a financial professional when you need to
think about it again unless your wishes or your financial just makes sense.
circumstances change substantially.
Your financial institution can help you with many
A key decision you will make when creating your will facets of financial management. They can provide you
is to determine the right executor. The role of the services that will assist you in developing a savings and
executor is to administer the estate and distribute your spending plan, handling your debt, or preparing you to
assets to your various beneficiaries. You can choose buy a home. Most offer financial planning products and
almost any adult who is legally competent to serve services that can help with your long-term planning and
for your executor. You may choose to name corporate savings needs.
executors instead, such as a financial institution trust
department. Many estate planning professionals You can also continue to learn on your own. The
recommend using corporate executors because the Internet has a wealth of information and there are many
responsibilities of the executor can be very complicated books and magazines available on business and finance.
and bureaucratic. Most of these can be found at the library so you don’t
even need to buy them. Financial seminars are also a
Some people opt to use a trust rather than a will great source of information.
to avoid probate (the court-supervised process of
proving and administering a will). A trust is generally Staying informed allows you to recognize opportunity
more private than a will as it is not a matter of public and avoid financial missteps. It helps you maintain
record, and they are far more difficult to contest. Trusts patience and adopt a long-term perspective when the
are often used to unify the estate’s assets under one road gets a little bumpy. It also pays to take the time
manager and save on taxes. They can also provide a to inform your family about the household finances
continuing income stream to your beneficiaries after if they are not already actively involved. Sharing this
your death. knowledge can offset any problems if there is an
emergency or change in who is managing your family’s
In this time of scientific discovery and sophistication, finances.
many people are faced with difficult decisions around
life-saving measures for their loved ones who fall ill or Successful financial management is an ongoing process.
are seriously injured. To protect your family from these It is important to continually monitor your savings
decisions, be sure to document whatever life saving and investments and adjust your plan as necessary.
measures you may want implemented in case the Fortunately, you don’t have to be an expert in personal
situation arises. finance to achieve success, but a solid understanding of
the basics – and following these 10 steps – can put you
Protecting your assets to best provide for your family in control of your money.

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