FINANCIAL
defendernetwork.com
APRIL 21 | 2016 | DEFENDER
1B
Special Edition
5
keys to financial literacy By JASEMINE KNOWLES Defender
April is National Financial Literacy Month, a time to shed light on money management. Barbara Paige, a financial advisor with Ameriprise Financial Services, offers five keys to becoming financially literate.
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Barbara Paige
Set and keep personal goals. Whether you’re planning to have zero credit card debt, trying to fund a vacation or struggling with paying off student loan debt, Paige said setting financial goals is one step toward making your life a little easier. “Start by thinking about the things that are important to you,” she said. To figure it out, ask yourself five questions and use them to make a list of your short, medium and long-term goals. • What part of your home or life would you like to change? • When would you like to retire or have a workoptional lifestyle? • What is most important to you in retirement? • What are the causes you would like to be more involved with? • What would you like to have more of in your life? “Think about how you would prioritize your goals so that you can balance your life today with your dreams for tomorrow, since you may not be in the position to achieve all of your goals at once,” Paige said.
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Know your cash flow. Paige said it’s critical that you know how much money you have. “Your cash inflow (money received) is fairly easy to measure, as it’s just your salary plus any other sources of income,” she said. “However, measuring cash outflow (money paid out) may take a bit more effort.” Paige said most people know how much their monthly household and essential living expenses are, but other cash outflows – such as quarterly auto insurance payments, auto drafts for memberships, annual
property taxes that are not included in mortgage escrow and miscellaneous daily expenses – can often be overlooked. To get a complete picture of your cash flow, track your expenses for a few months with a spreadsheet or a money management app. Once you get a good grasp of your monthly finances, establish a budget and stick to it. “Some people view budgeting as a restriction when really it can help you to take control of your money,” Paige said. “Creating a budget puts you in the driver’s seat instead of just going along for the ride.”
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Plan for financial uncertainty. Whether it relates to your job, personal life or the larger economy, uncertainty often has financial consequences. To manage what you can’t predict, Paige said speak with an advisor and come up with a financial plan. “A financial advisor can help you to refine your goals, assess your cash flow and create a plan to help guide you to where you want to be financially,” she said. “However, unexpected events like a job loss, prolonged illness or injury, premature death, or liability exposure, could possibly derail your plan.” Paige said people often shy away from discussing such topics because they may require potentially uncomfortable conversations and tough decisions, but this avoidance can leave you vulnerable.
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Minimize your taxable income. You can receive income in the form of money, property or services. Generally, an amount included in your income is taxable unless it is specifically exempted by law.
“Some people pay more in taxes [than they need to] because they may not be aware of tax management strategies that exist or perhaps because they aren’t properly diversified from a tax perspective,” Paige said. “It’s important to diversify your assets with respect to tax treatment, especially in retirement. If you have assets with different tax treatments [taxable, tax-deferred and tax-fee] you could have a more tax-efficient way to get money when you need it and reduce taxes and penalties.”
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Develop an investment strategy. Paige suggests creating a plan that’s designed to help you meet your unique goals. “It’s important to consider your goals in conjunction with your time frame and your risk tolerance,” she said. Though there is no guarantee that any investment strategy will be successful, Paige said your level of risk should feel comfortable to you. “Investing is not a one-size-fits-all approach,” she said. “Everyone’s situation is different so the way someone else invests may not be the right fit for you.” Diversification is another key concept when it comes to an investment strategy. “After you have a strategy, you will need to periodically review your portfolio to make sure it remains in line with your needs and expectations all while avoiding making emotional decisions about your investments,” she said. “The short story is, get invested, establish your risk tolerance, diversify, stay invested and make necessary adjustments along the way.” For more information visit: www.ameripriseadvisors.com/Barbara/paige.
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